AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 8, 2007
Registration No. 333-139037
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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AMENDMENT NO. 1 TO THE
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
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XTRA-GOLD RESOURCES CORP.
(Name of Small Business Issuer in Its Charter)
NEVADA 1000 91-1956240
------------------------------- ---------------------------- -------------------
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Number) Identification No.)
6 Kersdale Avenue
Toronto, Ontario M6M 1C8 Canada
Telephone: (416) 653-5151
Facsimile: (416) 981-3055
(Address, Telephone and Fax Number of Principal Executive Offices)
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Nevada Corporate Services
1800 E. Sahara, Suite 107
Las Vegas NV 89104
Telephone: (702) 734-7557
(Name, Address and Telephone Number of Agent for Service)
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Copies of all communications to:
Roxanne K. Beilly
Schneider Weinberger & Beilly LLP
2200 Corporate Blvd., N.W., Suite 210
Boca Raton, FL 33431
Telephone: (561) 362-9595
Facsimile: (561) 362-9612
Approximate Date of Proposed Sale to the Public: As soon as practicable after
the effective date of this Registration Statement.
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If this Form is filed to register additional securities for an offering [ ]
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c) [ ]
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(d) [ ]
under the Securities Act, check the following box and list the Securities
Act registration number of the earlier effective registration statement for
the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434, [ ]
please check the following box.
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CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED
TITLE OF EACH MAXIMUM MAXIMUM AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER SECURITY (1) OFFERING PRICE (1) FEE (1)
Common Stock, par value
$.001 per share (2) ............... 5,265,322 1.20 $ 6,318,384 $ 1,060
Common Stock, par value
$.0001 per share issuable
upon the exerciser of options (3) . 300,000 1.20 $ 360,000 $ 39
Common Stock, par value
$.001 per share, issuable
upon the exercise of options (4) .. 756,000 1.20 $ 907,200 $ 166
Common Stock, par value
$.001 per share, issuable
upon the exercise of options (5) .. 400,000 1.20 $ 480,000 $ 51
Common Stock, par value
$.001 per share, issuable
upon the exercise of
warrants (6) ...................... 996,056 1.20 $ 1,195,267 $ 127
Common stock issuable
upon the conversion of
convertible debentures
and accrued interest (7) .......... 915,750 1.20 $ 1,098,900 $ 117
--------- ---- ------------- --------
TOTAL REGISTRATION FEE ............ 8,633,128 $ 1,560
========= ========
__________
(1) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933 based on the
average of the high and low sale price of the common stock as reported
on the Pink Sheets on November 24, 2006.
(2) Includes shares of common stock presently outstanding.
(3) Includes shares of common stock issuable upon the exercise of options
with an exercise price of $0.55 per share expiring on June 20, 2015.
(4) Includes shares of common stock issuable upon the exercise of options
with an exercise price of $0.70 per share expiring between April 21,
2009 and May 1, 2009.
(5) Includes shares of common stock issuable upon the exercise of options
with an exercise price of $0.90 per share expiring on August 1, 2009.
(6) Includes shares of common stock issuable upon the exercise of common
stock purchase warrants with an exercise price of $1.50 per share
expiring between June 16, 2007 and October 31, 2007.
(7) Includes shares of common stock issuable upon the conversion of
$900,000 principal amount of convertible debentures and up to a maximum
of $15,750 in the event that the holders convert the then accrued
interest which would be no more than for a three month period, based
upon a conversion price of $1.00 per share until June 30, 2010.
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To the extent permitted pursuant to Rule 416, this Registration Statement also
covers such additional number of common shares as may be issuable as a result of
reclassifications, stock splits, stock dividends or similar events of the common
stock, options, common stock purchase warrants and convertible debentures listed
above.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
Subject to Completion _______, 2007
PROSPECTUS
XTRA-GOLD RESOURCES CORP.
8,633,128 SHARES OF COMMON STOCK
This prospectus (the "PROSPECTUS") and the registration statement (the
"REGISTRATION STATEMENT"), of which it is a part, are being filed with the
Securities and Exchange Commission (the "COMMISSION") to satisfy our obligations
to the recipients of certain shares of common stock, share purchase warrants
(the "WARRANTS"), optionees who have been granted nonqualified stock options
("OPTIONS") and holders of convertible debentures ("CONVERTIBLE DEBENTURES")
(collectively, the "SELLING SECURITY HOLDERS") of Xtra-Gold Resources Corp. This
Prospectus and the Registration Statement cover the resale:
o by certain Selling Security Holders and their transferees, donees or
successors, of 5,265,322 shares of our issued and outstanding common
stock;
o by certain Selling Security Holders and their transferees, donees or
successors, of 996,056 shares of common stock issuable upon exercise of
the Warrants at an exercise price of $1.50 per share expiring on June
16, 2007, July 31, 2007 and October 31, 2007 respectively;
o by certain Selling Security Holders and their transferees, donees or
successors, of up to 1,456,000 shares of common stock issuable upon the
exercise of the Options (i) at a price of $.55 per share expiring on
June 20, 2015; (b) at a price of $.70 per share expiring on April 21,
2009 and May 1, 2009 respectively; and (c) at a price of $0.90 per
share expiring on August 1, 2009; and
o by certain Selling Security Holders and their transferees, donees or
successors, of up to 900,000 shares of common stock issuable upon the
conversion of convertible debentures and up to a maximum of 15,750
shares of common stock issuable in the event that the holders convert
the then accrued interest which would be no more than for a three month
period at a price of $1.00 per share expiring on June 30, 2010.
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We will not receive any proceeds from sales of shares by the Selling
Security Holders.
Our common stock is quoted on the "Pink Sheets" quotation system ("PINK
SHEETS") maintained by Pink Sheets LLC under the symbol "XTGR". The last
reported sales price of our common stock on the Pink Sheets on February 6, 2007
was $.71.
There is no active market for our common stock and we do not know if an
active trading market will develop. The Selling Security Holders will offer and
sell their shares of common stock covered by this Prospectus at $.__ per share
until our shares are quoted on the over-the-counter bulletin board or on an
exchange, and thereafter, at prevailing market prices or privately negotiated
prices. The "Pink Sheets" is not considered an exchange for purposes of selling
at other than the fixed price of $___.
For a description of the plan of distribution of the shares, please see
page 91 of this Prospectus.
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 8 OF THIS PROSPECTUS TO READ ABOUT RISKS OF INVESTING IN OUR
COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is _______, 2007.
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PROSPECTUS SUMMARY
THE COMPANY
SUMMARY OF BUSINESS
We are engaged in the exploration, development and early stage
production of mining of gold properties exclusively in the Republic of Ghana
("GHANA"), West Africa. Our interests in our projects are held, by our Ghanaian
subsidiaries, through prospecting licences and mining leases granted by the
Government of Ghana for licensed or leased areas respectively located within and
upon concessions in Ghana. A concession is a grant of a tract of land made by a
government or other controlling authority in exchange for an agreement that the
land will be used for a specific purpose.
Exploration means we are engaged in the search for mineral deposits or
reserves which could be economically and legally extracted or produced and
typically includes the review of existing data, grid establishment, geological
mapping, geophysical surveying, trenching and pitting to test the areas of
anomalous soil samples and RC and/or diamond drilling to test targets followed
by infill drilling, if successful, to define reserves. Development stage
generally means the development of a placer or lode gold project including
detailed exploration, reserve definition, preparation of a feasibility study, an
environmental impact study and a detailed mine plan, permitting and construction
of a mine._ Production means the processing of gold bearing ore through some
type of treatment plant to extract the gold from the ore. We have six projects
as follows:
o Kwabeng Project. Our interest in this project is held by a mining
lease. In January 2007 we commenced early stage production operations
(Bulk Test) at our Kwabeng Project and it will be conducted during
February and March of 2007. We are undertaking the Bulk Test to
determine the economic feasibility of carrying out our full scale mine
plan.
o Pameng Project. Our interest in this project is held by a mining lease.
This project is in the development stage. Upon completion of our full
mine plan at our Kwabeng Project, we plan to then initiate production
mining operations at our Pameng Project.
o Banso Project. Our interest in this project is held by a prospecting
license. This project is in the exploration stage.
o Muoso Project. Our interest in this project is held by a prospecting
license. This project is in the exploration stage.
o Apapam Project. Our interest in this project is held by a prospecting
license. This project is in the exploration stage.
o Edum Banso Project. We have an option to acquire the interest in a
prospecting license in Edum Banso. Although we have not commenced any
exploration activities on this project, this project is in the
exploration stage.
To a much lesser extent, we also plan in the next year or two to engage in the
exploration of oil and gas producing properties in Canada and Ghana through two
of our wholly-owned subsidiaries, which subsidiaries currently conduct no
activity except one subsidiary has filed an application for a petroleum
agreement with the Ghana National Petroleum Corporation ("GNPC").
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We have produced no revenues, have achieved losses since inception, have minimal
operations, and currently rely upon the sale of our securities to fund our
operations. We estimate that the initial mine operating, capital and
administration costs for the full development of our Kwabeng and Pameng Projects
will be approximately $10,700,000, the cost for the exploration programs at our
Banso, Muoso, Apapam and Edum Banso Projects will be approximately $500,000 and
our general and administrative costs will be $1,200,000 for the next 12 months.
Based on approved expenditures in our corporate operating budget for 2007, we
anticipate spending a minimum of approximately $10,700,000 over the next twelve
months, however, we would not expend this amount unless we are able to generate
revenues from our Kwabeng Project. At September 31, 2006, we had working capital
of approximately $3,400,000, consisting of $760,000 in cash and $2,697,092 in
trading securities. Absent immediately generating revenues or raising additional
financing, we estimate that we will be able to continue operations for
approximately 6 months.
CORPORATE HISTORY
Xtra-Gold Resources Corp. ("XTRA-GOLD") was incorporated under the laws
of the State of Nevada on September 1, 1998 under the name Silverwing Systems
Corporation with an authorized capital consisting of 25,000,000 shares of common
stock at a par value of $.001 per share. On August 19, 1999, we changed our name
to Advertain On-Line Inc. to better describe our intended business, at which
time the then current management resigned and new management was appointed. On
June 18, 2001, we changed our name to RetinaPharma International, Inc.
("RETINAPHARMA"), to better describe our intended business, at which time the
then current management resigned and the former management was reappointed. On
December 16, 2003, following the acquisition of our wholly-owned subsidiary,
Xtra-Gold Resources, Inc., a Florida corporation ("XGRI") on October 31, 2003,
we changed our name to Xtra-Gold Resources Corp. and increased the number of
shares of common stock we are authorized to issue to 250,000,000 shares
effective December 19, 2003. We undertook this name change to better describe
our intended business. In November 2003 the then current management resigned and
new management was appointed.
On October 20, 2005, we amended the name of XGRI to Xtra Energy Corp.
("XTRA ENERGY"). On October 20, 2005, we incorporated our wholly-owned
subsidiary, Xtra Oil & Gas Ltd. ("XOG"), an Alberta, Canada corporation, and on
March 2, 2006, we incorporated our wholly-owned subsidiary, Xtra Oil & Gas
(Ghana) Limited ("XOG GHANA"), an Accra, Ghana corporation for the business
purpose set forth hereunder. On April 7, 1998, our wholly-owned subsidiary
Xtra-Gold Exploration Limited ("XGEL"), a Ghana corporation, was formed. On June
7, 1989, our 90% owned subsidiary, Xtra-Gold Mining Limited ("XG MINING"), a
Ghana corporation, was formed.
LOCATION
Our head office is located at 6 Kersdale Avenue, Toronto, Ontario,
Canada, M6M 1C8, and our telephone number there is (416) 653-5151. We maintain
technical offices at P.O. Box CT5239, Cantonments, House No. 15, Ade-Coker Road,
East Legon, Accra, Ghana and at 430 Westmount Avenue, Unit F, Sudbury, Ontario,
P3A 5Z8. References in this Prospectus to "Xtra-Gold", "Company", "we", "us" and
"our" are to Xtra-Gold Resources Corp., a Nevada corporation, and our wholly
owned subsidiaries, Xtra Energy, a Florida corporation; XOG, an Alberta
corporation; XGEL, a Ghana corporation, XOG Ghana, a Ghana corporation and our
90% owned subsidiary, XG Mining, a Ghana corporation.
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OTHER PERTINENT INFORMATION
All information in this Prospectus gives effect to a 5:1 forward split
of our outstanding common stock on December 19, 2003. Our fiscal year end is
December 31.
THE OFFERING
This Prospectus covers the resale of a total of 8,633,128 shares of our
common stock by Selling Security Holders. Of those shares covered by this
Prospectus, 5,265,322 shares have been issued and are currently outstanding. The
remaining 3,367,806 shares are issuable upon the exercise of Warrants, Options
and Convertible Debentures and up to a maximum of 15,750 shares of common stock
issuable in the event that the holders convert the then accrued interest (the
"ACCRUED INTEREST") which would be no more than for a three month period that
may be converted by certain Selling Security Holders. Selling Security Holders
may resell their shares from time to time, including through broker-dealers, at
prevailing market prices. We will not receive any proceeds from the resale of
our shares by the Selling Security Holders. We will pay all of the fees and
expenses associated with the registration of the shares covered by this
Prospectus.
Common Stock:
Outstanding Prior to this Offering . 28,088,157 shares
Outstanding After this Offering ... 31,455,963 shares, including an
aggregate of 3,367,806 shares covered by
this Prospectus which are reserved for
possible issuance upon the exercise of
outstanding Warrants and Options and the
conversion of Convertible Debentures and
the Accrued Interest.
Common Stock Reserved ............. 996,056 shares issuable upon exercise of
outstanding Warrants, 1,456,000 shares
issuable upon exercise of outstanding
Options and up to 915,750 shares
issuable on conversion of the
outstanding principal owing under the
Convertible Debentures and the Accrued
Interest (the resale of which is covered
by this Prospectus). The Warrants are
exercisable at $1.50 per share, the
Options are exercisable at $.55 per
share, $.70 per share and $.90
respectively and the Convertible
Debentures and the Accrued Interest are
convertible into shares at $1.00 per
share.
SELECTED FINANCIAL DATA
The selected financial data set forth hereunder has been derived from
our audited consolidated financial statements for the years ended December 31,
2005 and 2004 and our unaudited consolidated financial statements for the nine
months ended September 30, 2006 and should be read in conjunction with the
consolidated financial statements included elsewhere in this Prospectus.
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BALANCE SHEET DATA
SEPTEMBER 30 DECEMBER 31
2006 2005 2004
--------------------------------------------------------------------------------
Working capital equity .......... $ 3,426,518(1) $ 2,745,926 $ 981,740
Current assets .................. $ 3,513,872 $ 3,138,250 $ 1,089,646
Total assets .................... $ 12,352,310 $ 11,757,304 $ 9,613.617
Current liabilities ............. $ 87,354 $ 392,324 $ 107,906
Total liabilities ............... $ 1,034,494 $ 1,336,157 $ 147,771
Stockholders' equity ............ $ 11,317,816 $ 10,421,147 $ 9,465,846
(1) Comprised of current assets of $3,513,872 less current liabilities of
$87,354. Our current assets were comprised mostly of $760,696 in cash and cash
equivalents and $2,697,092 in trading securities.
STATEMENT OF OPERATIONS DATA
NINE MONTHS ENDED SEPTEMBER 30 YEARS ENDED DECEMBER 31
2006 2005 2005 2004
---------------------------------------------------------
Revenues ............ $ - $ - $ - $ -
Cost of revenues .... $ - $ - $ - $ -
Operating expenses .. $ 678,195 $ 208,836 $ 416,639 $ 215,362
Net (loss) income ... $ (1,375,973) $ 197,803 $(272,572) $(398,533)
Net (loss) per share $ (0.05) $ 0.00 $ (0.01) $ (0.01)
RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY IS SPECULATIVE IN NATURE
AND INVOLVES A HIGH DEGREE OF RISK. THE FOLLOWING FACTORS ARE BELIEVED BY
MANAGEMENT OF OUR COMPANY ("MANAGEMENT") TO BE THE MATERIAL RISKS THAT SHOULD BE
CAREFULLY CONSIDERED BY INVESTORS BEFORE PURCHASING OUR SHARES.
SALES OF A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK INTO THE PUBLIC
MARKET BY THE SELLING SECURITY HOLDERS MAY RESULT IN SIGNIFICANT DOWNWARD
PRESSURE ON THE PRICE OF OUR COMMON STOCK AND PURCHASERS OF OUR SHARES MAY BE
UNABLE TO RESELL THEIR SHARES.
We had 28,088,157 shares of our common stock issued and outstanding as
at February 1, 2007. When the Registration Statement which this Prospectus forms
a part is declared effective, the Selling Security Holders will be able to
resell up to 8,633,128 shares of our common stock, which includes up to an
aggregate of 3,367,806 shares to the extent any of the Selling Security Holders
exercise any of the Warrants or Options or convert any portion of the principal
owing under the Convertible Debentures into shares. To the extent that these
shares are sold into the market by the Selling Security Holders, there may be an
oversupply of shares and undersupply of purchasers. In the event of this
occurrence, the market price for our shares may decline significantly and
purchasers may be unable to selling their shares at a profit, or at all.
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As a result of the foregoing, a substantial number of our shares of
common stock will be available for immediate resale, which could cause the price
of our common stock to decline. As a result of any decrease in price of our
common stock, purchasers who acquire shares from the Selling Security Holders
may lose some or all of their investment. Any significant downward pressure on
the price of our common stock as the Selling Security Holders sell their shares
of our common stock could encourage short sales by the Selling Security Holders
or others. Any such short sales could also cause the price of our common stock
to decline.
WE HAVE NOT GENERATED ANY REVENUES FROM OPERATIONS, WE HAVE A HISTORY OF LOSSES
AND A SUBSTANTIAL ACCUMULATED DEFICIT, AND WE MAY BE UNABLE TO OBTAIN
PROFITABILITY IN THE FUTURE OR CONTINUE AS A GOING CONCERN; OUR INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM HAS RAISED DOUBT OVER OUR CONTINUED EXISTENCE
AS A GOING CONCERN.
We have never generated any revenues. Our operations to date have been
financed through the issuance of equity and debt securities. We have incurred
substantial operating losses, as well as negative operating cash flow, since our
inception. As a result, we continued to have significant working capital and
stockholders' deficits including a substantial accumulated deficit of $673,805
and $401,233, at December 31, 2005 and 2004, respectively, and $2,049,778 at
September 30, 2006. Our operating results for future periods will include
significant expenses, including exploration, development, production and
administrative expenses. We may never generate revenues or be profitable in the
future. In recognition of such, our independent registered public accounting
firm has included an explanatory paragraph in their report on our consolidated
financial statements for the fiscal years ended December 31, 2005 and 2004,
which expresses substantial doubt regarding our ability to continue as a going
concern.
WE HAVE NOT GENERATED ANY REVENUES FROM OPERATIONS, WE ARE CURRENTLY AT AN EARLY
STAGE OF PRODUCTION WITH RESPECT TO OUR KWABENG PROJECT AND DO NOT HAVE ANY
OTHER ONGOING PRODUCTION. THE CHANCE OF COMPLETING PRODUCTION AT OUR KWABENG
PROJECT AND EVER REACHING THE PRODUCTION STAGE AT OUR OTHER VARIOUS PROJECT IS
UNCERTAIN. IN THE EVENT WE SHOULD EVER REACH THE PRODUCTION STAGE AND BEGIN
SUBSTANTIVE MINING OPERATIONS WE WILL BE SUBJECT TO A NUMBER OF RISKS WHICH
COULD ADVERSELY AFFECT OUR ABILITY TO EVER GENERATE ANY SIGNIFICANT REVENUES.
Our Kwabeng Project is in the early production stage, our Pameng
Project is in the development stage and the remainder of our project interests
are in the exploration stage. We have never generated any revenues from our
operations. We presently only have ongoing early stage production at our Kwabeng
Project which may not generate revenues. Our exploration and development efforts
are subject to risks which are beyond our control, including:
o mineral exploration involves a high degree of risk and few properties
which are explored are ever developed into producing mines and our exploration
efforts may never result in the discovery of commercial bodies of
mineralization, and
o we may experience delays in obtaining, or be unable to obtain, the
necessary approvals, licenses, permits or surface land and easement rights
necessary to develop our projects which could delay or prevent us from
continuing our development efforts.
If we are to bring one or more of our projects to a production stage
and commence substantive mining operations, we will face a number of additional
risks and uncertainties including:
o mining activities are inherently dangerous and we may not be able to
obtain insurance to cover the liabilities associated with these activities,
o because reserve estimates are imprecise, we may be required to reduce
our reserve estimates based on actual production which could result in material
write downs in investments in one or more of our projects, and
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o illicit mining on one or more of our projects by artisanal miners
could result in environmental damage and surface depletion of mineral deposits
making the future mining of those deposits not economically feasible.
We may be unable to commence substantive mining operations or, if
commenced, we may not ever generate any significant revenues from mining
operations. In that event, we could be forced to cease operations.
WE WILL NEED SUBSTANTIAL ADDITIONAL FINANCING TO COMPLETE THE DEVELOPMENT AND TO
COMMENCE PRODUCTION AT OUR KWABENG AND PAMENG PROJECTS AND COMPLETE THE
EXPLORATION AT OUR BANSO AND MUOSO, APAPAM AND EDUM BANSO PROJECTS. IF WE CANNOT
RAISE ADDITIONAL CAPITAL AS NEEDED, OUR ABILITY TO EXECUTE OUR BUSINESS PLAN AND
FUND OUR ONGOING OPERATIONS WILL BE IN JEOPARDY.
We estimate that the initial mine operating, capital and administration
costs for the full development of our Kwabeng and Pameng Projects will be
approximately $10,700,000, the cost for the exploration programs at our Banso,
Muoso, Apapam and Edum Banso Projects will be approximately $500,000 and our
general and administrative costs will be $1,200,000 for the next 12 months.
Based on approved expenditures in our corporate operating budget for 2007, we
anticipate spending a minimum of approximately $10,700,000 over the next twelve
months, however, we would not expend this amount unless we are able to generate
revenues from our Kwabeng Project. Our future capital requirements depend on a
number of factors, including our ability to generate revenues, manage our
business and control our expenses. As described elsewhere herein, at September
31, 2006, we had working capital of approximately $3,400,000, consisting of
$760,000 in cash and $2,697,092 in trading securities. Absent immediately
generating revenues or raising additional financing, we estimate that we will be
able to continue operations for approximately 6 months. We are exploring various
financing alternatives for the balance of the projected costs and expenses. We
cannot assure you that we will be able to obtain the necessary financing for our
Projects on favorable terms or at all. Additionally, if the actual costs to
complete the development of our Kwabeng and Pameng Projects are significantly
higher than we expect, we may not have sufficient funds to cover these costs and
we may not be able to obtain other sources of financing. The failure to obtain
all necessary financing would prevent us from achieving production at our
Kwabeng and Pameng Projects and impede our ability to generate revenues or
become profitable, and we could be forced to cease our operations.
MOST OF OUR PROJECTS ARE IN THE EXPLORATION STAGE AND MAY NOT RESULT IN THE
DISCOVERY OF COMMERCIAL BODIES OF MINERALIZATION WHICH WOULD RESULT IN OUR
DISCONTINUING THAT PROJECT.
Our Kwabeng Project is in the early production stage, our Pameng
Project is in the development stage and all of our other project interests are
in the exploration stage. Mineral exploration involves a high degree of risk and
few properties which are explored are developed into producing mines. The
exploration efforts on our Banso and Muoso, Apapam and Edum Banso Projects may
not result in the discovery of commercial bodies of mineralization which would
require us to discontinue that project.
THE DEVELOPMENT OF OUR KWABENG AND PAMENG PROJECTS MAY BE DELAYED DUE TO DELAYS
IN RECEIVING REGULATORY PERMITS AND APPROVALS, WHICH WOULD DELAY OUR ABILITY TO
COMMENCE PRODUCTION AND GENERATE REVENUES WHICH, ABSENT RAISING ADDITIONAL
FINANCING, COULD CAUSE US TO CURTAIL OR DISCONTINUE DEVELOPMENT OR OPERATIONS,
IF ANY.
We may experience delays in developing our Kwabeng and Pameng Projects.
The timing of development of our Kwabeng and Pameng Projects depends on many
factors, some of which are beyond our control, including the:
o timely issuance of permits; and
o acquisition of surface land and easement rights required to develop
and operate the projects, particularly if we are required to acquire
surface land through expropriation in connection with our mining
concessions;
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These delays may affect the timing of development of these projects, and could
increase their development costs, affect their economic viability, or prevent us
from completing their development and generating revenues therefrom.
WE MAY NOT BE ABLE TO OBTAIN, RENEW OR CONTINUE TO COMPLY WITH ALL OF THE
PERMITS NECESSARY TO DEVELOP AND OPERATE EACH OF OUR PROJECTS WHICH WOULD FORCE
US TO DISCONTINUE DEVELOPMENT OR OPERATIONS, IF ANY, ON THAT PROJECT.
Pursuant to Ghanaian law, we must obtain various approvals, licences or
permits in connection with the development and operations, if any, of our
Projects in connection with environmental protection and the use of water
resources. In addition to requiring permits for the development of our mining
concessions located at each of our Kwabeng and Pameng Projects, we may need to
obtain other permits and approvals during the life of these projects. Obtaining,
renewing and continuing to comply with the necessary governmental permits and
approvals can be a complex and time-consuming process. The failure to obtain or
renew the necessary permits or licenses or continue to meet their requirements
could delay development, increase our costs or, in some cases, require us to
discontinue mining operations.
THE GOVERNMENT OF GHANA HAS THE RIGHT TO INCREASE ITS OWNERSHIP INTERESTS IN OUR
XM MINING SUBSIDIARY FOR NO CONSIDERATION AND HAS A PREEMPTIVE RIGHT TO PURCHASE
ALL GOLD AND OTHER MINERALS PRODUCED BY XM MINING. IF THE GOVERNMENT OF GHANA
WERE TO EXERCISE ANY OF ITS RIGHTS, OUR RESULTS OF OPERATIONS IN FUTURE PERIODS
COULD BE ADVERSELY IMPACTED.
The Government of Ghana currently has a 10% free carried interest in XG
Mining, one of our Ghanaian subsidiaries that holds two mining leases covering
our Kwabeng and Pameng concessions. The Government of Ghana also has: (a) the
right to acquire up to an additional 20% equity interest in XG Mining for a
price to be determined by agreement or arbitration; (b) the right to acquire a
special share or golden share (see "Ghanaian Law - Ghanaian Ownership and
Special Rights") in XG Mining at any time for no consideration or such
consideration as the Government of Ghana and XG Mining might agree; and (c) a
preemptive right to purchase all gold and other minerals produced by XG Mining.
We cannot assure you that the Government of Ghana would not seek to exercise one
or more of these rights which, if exercised, could have an adverse affect on our
results of operations in future periods. If the Government of Ghana should
exercise its right to either acquire the additional 20% equity interest in XG
Mining or its right to acquire the special share or golden share, any profit we
might otherwise report from XG Mining's operations would be proportionally
reduced in the same percentage as the minority interest attributable to the
Government of Ghana in that subsidiary would be increased. If the Government of
Ghana should exercise its right to purchase all gold and other minerals produced
by XG Mining, the price it would pay may be lower than the price we could sell
the gold or other minerals for in transactions with third parties and it could
result in a reduction in any revenues we might otherwise report from XG Mining's
operations.
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OUR ACTIVITIES ARE SUBJECT TO ENVIRONMENTAL LAWS AND REGULATIONS THAT MAY
INCREASE OUR COSTS OF DOING BUSINESS AND MAY RESTRICT OUR OPERATIONS.
All of our exploration, development and production activities in Ghana
are subject to regulation by governmental agencies under various environmental
laws. To the extent we conduct exploration activities or undertake new mining
activities in other foreign countries, we will also be subject to environmental
laws and regulations in those jurisdictions. These laws address emissions into
the air, discharges into water, management of waste, management of hazardous
substances, protection of natural resources, antiquities and endangered species,
and reclamation of lands disturbed by mining operations. Environmental
legislation in many countries is evolving and the trend has been towards
stricter standards and enforcement, increased fines and penalties for
non-compliance, more stringent environmental assessments of proposed projects
and increasing responsibility for companies and their officers, directors and
employees. Compliance with environmental laws and regulations may require
significant capital outlays and may cause material changes or delays in our
intended activities. We cannot assure you that future changes in environmental
regulations will not adversely affect our business, and it is possible that
future changes in these laws or regulations could have a significant adverse
impact on some portion of our business, causing us to re-evaluate those
activities at that time.
In addition, we may be exposed to potential environmental impacts only during
any full scale mining that occurs following completion of our bulk test. At such
time of commencement of our full scale mining, if ever, we plan to negotiate
posting of a reclamation bond to quantify the reclamation costs. We anticipate
that the dollar amount of reserves established for exposure to environmental
liabilities is $500,000 to $2,000,000, however, we are currently unable to
predict the ultimate cost of compliance or the extent of liability risks.
OUR ACTIVITIES ARE SUBJECT TO COMPLEX LAWS, SIGNIFICANT GOVERNMENT REGULATIONS
AND ACCOUNTING STANDARDS THAT MAY DELAY OR PREVENT OPERATIONS AT OUR PROJECTS
AND CAN ADVERSELY AFFECT OUR OPERATING AND DEVELOPMENT COSTS, THE TIMING OF OUR
OPERATIONS, OUR ABILITY TO OPERATE AND OUR FINANCIAL RESULTS.
Our business, mining operations and exploration and development
activities are subject to extensive Ghanaian, United States, Canadian and other
foreign, federal, state, provincial, territorial and local laws and regulations
and also exploration, development, production, exports, taxes, labor standards,
waste disposal, protection of the environment, reclamation, historic and
cultural resource preservation, mine safety and occupational health, reporting
and other matters, as well as accounting standards. Compliance with these laws,
regulations and standards or the imposition of new such requirements could
adversely affect our operating and development costs, the timing of our
operations, our ability to operate and our financial results. These laws and
regulations governing various matters include:
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o environmental protection;
o management of natural resources;
o exploration, development of mines, production and post-closure
reclamation;
o export and import controls and restrictions;
o price controls;
o taxation;
o labor standards and occupational health and safety, including mine
safety;
o historic and cultural preservation; and
o general accepted accounting principles.
The costs associated with compliance with these laws and regulations may be
substantial and possible future laws and regulations, or more stringent
enforcement of current laws and regulations by governmental authorities, could
cause additional expense, capital expenditures, restrictions on or suspensions
of our operations and delays in the development of our Projects. These laws and
regulations may allow governmental authorities and private parties to bring
lawsuits based upon damages to property and injury to persons resulting from the
environmental, health and safety impacts of our past and current operations, and
could lead to the imposition of substantial fines, penalties or other civil or
criminal sanctions. In addition, our failure to comply strictly with applicable
laws, regulations and local practices relating to permitting applications or
reporting requirements could result in loss, reduction or expropriation of
entitlements, or the imposition of additional local or foreign parties as joint
venture partners. Any such loss, reduction, expropriation or imposition of
partners could have a materially adverse effect on our operations or business.
WE DEPEND ON THE CONTINUED SERVICES OF OUR VICE-PRESIDENT, EXPLORATION, SENIOR
PROJECT MANAGER, EXPLORATION, MANAGER, LODE GOLD EXPLORATION AND PROJECT
MANAGER, OPERATIONS AND THE LOSS AND FAILURE TO REPLACE ANY OF THESE PERSONS MAY
DAMAGE OUR OPERATIONS AND OUR ABILITY TO CONTINUE OUR DEVELOPMENT OR GENERATE
REVENUES IN FUTURE PERIODS.
Our future success depends upon the continued services of our
geological team, comprised of our Vice-President, Exploration, our Senior
Project Manager, Exploration, our Manager, Lode Gold Exploration and our Project
Manager, Operations, our Management Geologist and our Mine Manager. The term of
the contract for our Project Manager expired on January 31, 2007 and we are
currently negotiating a further six month contract with him, however, we may not
be successful in negotiating further renewals of his contract and will be
required to find a suitable replacement. The mining engineering and exploration
experience of these individuals with respect to the geological knowledge and
experience that is fundamental to our business operations is unique and if we
were to lose their services, we may encounter difficulty in replacing them. If
we were unable to replace these persons it may lead to our having to delay,
curtail or discontinue our exploration, development or operations, if any. In
this event, any trading market for our securities and your ability to liquidate
your investment would be negatively impacted and you could lose your entire
investment in our company. We do not maintain key person insurance on any of
these persons.
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WE MAY EXPERIENCE DIFFICULTY IN ENGAGING THE SERVICES OF QUALIFIED PERSONNEL IN
CONNECTION WITH OUR TECHNICAL OPERATIONS AT OUR KWABENG AND PAMENG PROJECTS.
In the event of the loss of any of our technical personal, we may have
difficulty finding qualified replacement. We will also need to engage additional
sought-after professionals to operate our Kwabeng and Pameng Projects according
to plan, including an environmental manager.
Our inability to hire and retain the services of qualified persons for
these positions in a timely manner could impede the commencement of gold
production at our Kwabeng and Pameng Projects which would have a material
adverse effect on our ability to conduct our business.
WE HAVE NOT VOLUNTARILY IMPLEMENTED VARIOUS CORPORATE GOVERNANCE MEASURES, IN
THE ABSENCE OF WHICH, STOCKHOLDERS MAY HAVE REDUCED PROTECTIONS AGAINST
INTERESTED DIRECTOR TRANSACTIONS, CONFLICTS OF INTEREST AND OTHER MATTERS.
Recent Federal legislation, including the Sarbanes-Oxley Act of 2002,
has resulted in the adoption of various corporate governance measures designed
to promote the integrity of the corporate management and the securities markets.
Some of these measures have been adopted in response to legal requirements.
Others have been adopted by companies in response to the requirements of
national securities exchanges, such as the NYSE or The NASDAQ Stock Market, on
which their securities are listed. Among the corporate governance measures rules
of national securities exchanges are those that address board of directors'
independence, audit committee oversight, and the adoption of a code of ethics.
Because our stock is not listed on an exchange , we are not required to adopt
these corporate governance standards. Our Board has not established Audit and
Compensation Committees and we have not adopted all of the corporate governance
measures which we might otherwise have been required to adopt if our securities
were listed on a national securities exchange. It is possible that if we were to
adopt some or all of the corporate governance measures, stockholders would
benefit from somewhat greater assurances that internal corporate decisions were
being made by disinterested directors and that policies had been implemented to
define responsible conduct. Prospective investors should bear in mind our
current lack of corporate governance measures in formulating their investment
decisions.
OUR COMMON STOCK IS CURRENTLY QUOTED ON THE PINK SHEETS AND TRADING IN THE
SHARES IS LIMITED. BECAUSE OUR STOCK CURRENTLY TRADES BELOW $5.00 PER SHARE, AND
IS QUOTED ON THE PINK SHEETS, OUR STOCK IS CONSIDERED A "PENNY STOCK" WHICH CAN
LIMIT OR MAKE TRADING AND LIQUIDITY IN THE STOCK MORE DIFFICULT TO EFFECTUATE.
The SEC has adopted regulations that generally define a penny stock to
be any equity security that has a market price of less than $5.00 per share,
subject to certain exemptions. Such exemptions include an equity security listed
on a national securities exchange or quoted on NASDAQ and an equity security
issued by an issuer that has net tangible assets of at least $2,000,000, if such
issuer has been in continuous operation for more than three (3) years. Unless
such an exemption is available, the regulations require the delivery of a
disclosure document to the investor explaining the penny stock market and the
risks associated therewith prior to any transaction involving a penny stock. In
addition, as long as the common stock is not listed on a national securities
exchange or at any time that the company has less that $2,000,000 in net
tangible assets, trading in the common stock is covered by Rule 15g-9 under the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), for
non-exchange listed securities. Under that rule, broker-dealers who recommend
such securities to persons other than established customers and accredited
investors must make a special written suitability determination for the
purchaser and receive the purchaser's written agreement to a transaction prior
to sale. Securities are exempt from this rule if the market price is at least
$5.00 per share. To the extent that we do not meet the exemptions under the
Penny Stock Rule, there will be reduced liquidity in the market.
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OUR COMMON STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE, WHICH COULD CAUSE THE
VALUE OF YOUR INVESTMENT TO DECLINE.
The market price of our Common Stock may be highly volatile. Investors
may not be able to resell their shares of our Common Stock following periods of
volatility because of the market's adverse reaction to volatility.. Factors that
could cause such volatility may include, among other things:
o actual or anticipated fluctuations in our quarterly operating
results;
o large purchases or sales of our Common Stock;
o additions or departures of key personnel;
o investor perception of our business prospects;
o conditions or trends in other industry related companies;
o changes in the market valuations of publicly traded companies in
general and other industry-related companies; and
o worldwide political, economic and financial conditions.
IT MAY BE DIFFICULT FOR STOCKHOLDERS TO ENFORCE ANY JUDGMENT OBTAINED IN THE
UNITED STATES AGAINST US OR OUR OFFICERS OR DIRECTORS, WHICH MAY LIMIT THE
REMEDIES OTHERWISE AVAILABLE TO OUR STOCKHOLDERS.
All of our directors and officers are residents of countries other than
the United States and all or a substantial portion of such persons' assets are
located outside the United States. As a result, it may be difficult or
impossible for investors to
o effect service of process on our directors or officers, or
o enforce any United States judgment they receive against us or our
officers or directors in a foreign court, or
o enforce within the United States any judgments obtained against us
or our officers or directors,
including judgments predicated upon the securities laws of the United States or
any state thereof. In addition, there is uncertainty as to whether foreign
courts would be competent to hear original actions brought in such foreign court
against us or such persons predicated upon the securities laws of the United
States or any state thereof. Consequently, you may be effectively prevented from
pursuing remedies under U.S. federal securities laws against us or our officers
and directors. The foregoing risks also apply to those experts identified in
this Prospectus that are not residents of the United States.
WE CANNOT PREDICT WHETHER WE WILL SUCCESSFULLY EFFECTUATE OUR CURRENT BUSINESS
PLAN. EACH PROSPECTIVE PURCHASER IS ENCOURAGED TO CAREFULLY ANALYZE THE RISKS
AND MERITS OF AN INVESTMENT IN THE SHARES AND SHOULD TAKE INTO CONSIDERATION
WHEN MAKING SUCH ANALYSIS, AMONG OTHERS, THE RISK FACTORS DISCUSSED ABOVE.
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USE OF PROCEEDS
We will not receive any proceeds upon the sale of shares of our common
stock offered by the Selling Security Holders under this Prospectus. Currently
covered by this Prospectus are 289,056 Warrants having an expiry date of June
16, 2007, 566,000 Warrants having an expiry date of July 31, 2007 and 141,000
Warrants having an expiry date of October 31, 2007 which, if exercised, the
maximum we would receive are gross proceeds of approximately $1,494,084. There
are also Options covered by this Prospectus which, if exercised, the maximum we
would receive are gross proceeds of approximately $1,054,000. There are
Convertible Debentures and Accrued Interest covered by this Prospectus which, if
converted, would reduce our debt by approximately $915,750.
The proceeds, if any, that we receive from the exercise of Warrants and
Options will be used for working capital primarily in support of our growing
business in the gold industry and secondly in support of our future business in
the oil and gas industry. The actual allocation of proceeds realized from the
exercise of these securities will depend upon the amount and timing of such
exercises, our operating revenues and cash position at such time and our working
capital requirements. There can be no assurances that any of the outstanding
warrants will be exercised.
MARKET FOR COMMON STOCK AND DIVIDEND POLICY
QUOTATIONS
Bid and ask prices for our common stock are quoted from broker dealers
on the Pink Sheets operated by Pink Sheets LLC under the symbol "XTGR". The
following table sets forth the range of high and low bid prices for our common
stock on the Pink Sheets since commencement. The quotations reflect inter-dealer
prices and do not include mark-ups or mark-downs or commissions and do not
represent actual transactions. There is limited trading for our shares and the
quotation of our shares on the Pink Sheets does not indicate that our shares can
be bought or sold at the prices set forth.
MARKET INFORMATION
PERIOD HIGH BID LOW BID
October 1, 2006 to December 31, 2006 ..................... $ 1.30 $ 0.60
July 1, 2006 to September 30, 2006 ....................... $ 1.30 $ 0.90
April 1, 2006 through June 30, 2006 ...................... $ 1.28 $ 0.96
January 1, 2006 through March 31, 2006 ................... $ 1.25 $ 0.94
October 1, 2005 through December 31, 2005 ................ $ 0.96 $ 0.84
July 1, 2005 through September 30, 2005 .................. $ 0.84 $ 0.70
April 1, 2005 through June 30, 2005 ...................... $ 0.70 $ 0.65
January 1, 2005 through March 31, 2005 ................... $ 0.69 $ 0.60
The last reported sales price of our common stock on the Pink Sheets on February
6, 2007 was $.71.
Since no public information, including audited financial statements was
available about our business, operating results or financial condition during
the time the bid prices occurred, the bid prices reflected might not reflect the
historical valuation of the Company on a per share basis, nor be an accurate
indication of the prices at which shares may be traded in the future, had such
information been available.
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Of the issued and outstanding shares, 25,324,407 shares of our common
stock (2,050,000 shares of which are owned by our officers, directors, directly
or indirectly, one of which directors who is also a principal stockholder and
2,064,526 shares which are owned by another principal stockholder, directly or
indirectly), have been held for in excess of one year and will be available for
public resale pursuant to Rule 144 promulgated under the Securities Act
commencing 90 days following the date of this Prospectus. As of the date of this
Prospectus, the 5,265,322 issued and outstanding shares being offered by Selling
Stockholders can be publicly transferred. Unless covered by an effective
registration statement, the resale of our shares of common stock owned by
officers, directors and affiliates is subject to the volume limitations of Rule
144. In general, Rule 144 permits our stockholders who have beneficially owned
restricted shares of common stock for at least one year to sell without
registration, within a three month period, a number of shares not exceeding one
percent of the then outstanding shares of common stock. Furthermore, if such
shares are held for at least two years by a person not affiliated with us (in
general, a person who is not one of our executive officers, directors or
principal stockholders during the three month period prior to resale), such
restricted shares can be sold without any volume limitation.
Sales of our common stock under Rule 144 or pursuant to such
registration statement may have a depressive effect on the market price for our
common stock.
DIVIDENDS
We have never paid cash dividends on our common stock. We intend to
retain future earnings, if any, to finance the expansion of our business, and we
do not anticipate that any cash dividends will be paid in the foreseeable
future. Our future payment of dividends will depend on our earnings, capital
requirements, expansion plans, financial condition and other relevant factors.
Our retained earnings deficit currently limits our ability to pay dividends.
STOCKHOLDERS OF RECORD
Our common stock was held by 254 stockholders of record as of February
5, 2007.
SEC "PENNY STOCK" RULES
The Securities and Exchange Commission has adopted regulations which
generally define a "penny stock" to be any equity security that has a market
price of less than $5.00 per share, subject to certain exceptions. Depending on
market fluctuations, our common stock could be considered to be a "penny stock".
A penny stock is subject to rules that impose additional sales practice
requirements on broker/dealers who sell these securities to persons other than
established customers and accredited investors. For transactions covered by
these rules, the broker-dealer must make a special suitability determination for
the purchase of these securities. In addition he must receive the purchaser's
written consent to the transaction prior to the purchase. He must also provide
certain written disclosures to the purchaser. Consequently, the "penny stock"
rules may restrict the ability of broker/dealers to sell our securities, and may
negatively affect the ability of holders of shares of our common stock to resell
them.
DETERMINATION OF OFFERING PRICE
Management has determined the offering price of the shares of common
stock being registered in the registration statement which this prospectus forms
a part on the price we last sold our stock and the historical bid and asked
prices of the common stock on the Pink Sheets.
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FORWARD-LOOKING STATEMENTS
This Prospectus, including the Management's Discussion and Analysis or
Plan of Operation, contains forward-looking statements with respect to our
financial condition, results of operations, business prospects, plans,
objectives, goals, strategies, future events, capital expenditure, and
exploration and development efforts. Words such as "anticipates", "expects",
"intends", "plans", "forecasts", "projects", "budgets", "believes", "seeks",
"estimates", "could", "might", "should", and similar expressions identify
forward-looking statements. Although we believe that our plans, intentions and
expectations reflected in these forward-looking statements are reasonable, we
cannot be certain that these plans, intentions or expectations will be achieved.
Actual results, performance or achievements could differ materially from those
contemplated, expressed or implied by the forward-looking statements. These
statements include comments regarding: the establishment and estimates of
mineral reserves and mineral resources, production, production commencement
dates, productions costs, cash operating costs per ounce, total cash costs per
ounce, grade, processing capacity, potential mine life, feasibility studies,
development costs, capital and operating expenditures, exploration, the closing
of certain transactions including acquisitions and offerings.
The following, in addition to the factors described elsewhere in this
Prospectus under "Risk Factors", are among the factors that could cause actual
results to differ materially from the forward-looking statements:
o unexpected changes in business and economic conditions;
o significant increases or decreases in gold or oil and gas prices;
o changes in interest rates and currency exchange rates;
o timing and amount of production;
o unanticipated grade changes;
o unanticipated recovery rates or production problems;
o changes in mining, processing and overhead costs;
o changes in metallurgy and processing technology;
o access and availability of materials, equipment, supplies, labor and
supervision, power and water;
o determination of mineral reserves and mineral resources;
o availability of drill rigs; changes in project parameters;
o costs and timing of development of new mineral reserves; results of
current and future exploration activities;
o results of pending and future feasibility studies; joint venture
relationships;
o political or economic instability, either globally or in the
countries in which we operate;
o local and community impacts and issues;
o timing of receipt of government approvals; accidents and labor
disputes; environmental costs and risks; and
o competitive factors, including competition for property
acquisitions; and availability of capital at reasonable rates or at
all.
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With respect to any forward-looking statement that includes a statement
of its underlying assumptions or bases, we believe such assumptions or bases to
be reasonable and have formed them in good faith, assumed facts or bases almost
always vary from actual results, and the differences between assumed facts or
bases and actual results can be material depending on the circumstances. When,
in any forward-looking statement, we express an expectation or belief as to
future results, that expectation or belief is expressed in good faith and is
believed to have a reasonable basis, but there can be no assurance that the
stated expectation or belief will result or be achieved or accomplished. All
subsequent written and oral forward-looking statements attributable to us, or
anyone acting on our behalf, are expressly qualified in their entirety by the
cautionary statements. Except for our ongoing obligations to disclose material
information under the Federal securities laws, we do not undertake any
obligations to publicly release any revisions to any forward-looking statements
to reflect events or circumstances after the date of this Prospectus or to
reflect unanticipated events that may occur.
Factors that may cause our actual results to differ materially from
those described in forward-looking statements include the risks discussed
elsewhere in this prospectus under the caption "Risk Factors".
MANAGEMENT'S DISCUSSION AND ANALYSIS
AND PLAN OF OPERATIONS
The following discussion and analysis of our consolidated financial
conditions and results of operations for the years ended December 31, 2005 and
2004 and the nine months ended September 30, 2006 should be read in conjunction
with the consolidated financial statements and the related notes to our
consolidated financial statements and other information presented elsewhere in
this Prospectus. The following discussion contains forward-looking statements
that reflect our plans, estimates and beliefs. Our actual results could differ
materially from those discussed in the forward-looking statements. Factors that
could cause or contribute to such differences include, but are not limited to
those discussed below and elsewhere in this Prospectus, particularly in the
section entitled "Risk Factors" beginning on page 9 of this Prospectus. Our
consolidated audited financial statements are stated in United States Dollars
and are prepared in accordance with United States Generally Accepted Accounting
Principles.
PLAN OF OPERATIONS
We are a gold exploration and production company engaged in the
exploration, and development of gold properties in the Republic of Ghana, West
Africa. Our mining portfolio currently consists of 246.84 square kilometers
(also referred to herein as "SQ KM") comprised of 51.67 sq km for our Banso
Project, 55.65 sq km for our Muoso Project, 33.65 sq km for our Apapam Project,
40.51 sq km for our Kwabeng Project, 44.76 sq km for our Pameng Project and
20.60 sq km for our Edum Banso Project,, or 60,969 acres, pursuant to the leased
and licensed areas set forth in our respective mining leases, prospecting
licenses and/or option agreement.
Our strategic plan with respect to our gold projects is to acquire
further interests in gold mineralized projects and oil and gas prospects that
fall within the criteria of providing a geological basis for development of
drilling initiatives that can provide near term revenue potential and fast
drilling capital repatriation from production cash flows while expanding
reserves. We anticipate that our ongoing efforts, subject to adequate funding
being available, will continue to be focused on successfully concluding
negotiations for the acquisition of gold producing domains and to develop
reserves and to provide revenues. We plan to continue building and increasing a
strategic base of proven reserves and production base within our Kwabeng and
Pameng Projects.
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Our ability to continue to expand land acquisitions and drilling
opportunities during the next 12 months is dependent on adequate capital
resources being available. Assuming adequate funding is available to us, we
intend to continue to develop the mining concession within our Kwabeng and
Pameng Projects with a view to commencing production in 2007 and acquiring
further interests in mineral projects by way of acquisition or joint venture
participation.
We estimate that the initial mine operating, capital and administration
costs for the full development of our Kwabeng and Pameng Projects will be
approximately $10,700,000, the cost for the exploration programs at our Banso,
Muoso, Apapam and Edum Banso Projects will be approximately $500,000 and our
general and administrative costs will be $1,200,000 for the next 12 months.
Based on approved expenditures in our corporate operating budget for 2007, we
anticipate spending a minimum of approximately $10,700,000 over the next twelve
months, however, we would not expend this amount unless we are able to generate
revenues from our Kwabeng Project.
We require additional funding to implement our plan of operations. We
anticipate that these funds primarily will be raised through equity and debt
financing or from other available sources of financing. If we raise additional
funds through the issuance of equity or convertible debt securities, it may
result in the dilution in the equity ownership of investors in our common stock.
There can be no assurance that additional financing will be available upon
acceptable terms, if at all. If adequate funds are not available or are not
available on acceptable terms, we may be unable to take advantage of prospective
new opportunities or acquisitions, which could significantly and materially
restrict our operations, or we may be forced to discontinue our current
projects.
We do not expect to purchase significant ore processing and gold
recovery equipment due to the availability of our floating placer gold ore
washing and processing plant, manufactured by IHC in the Netherlands and kept on
care and maintenance since 1994 at our Kwabeng concession. Once our full scale
mine plan has been thoroughly reviewed, we plan to determine whether we will
purchase or contract third parties with respect to the earthmoving and ancillary
earthmoving equipment fleet in connection with our gold production at our
Kwabeng and Pameng Projects during the next 12 months. As well, we plan to
significantly increase the number of key mining personnel including technical
consultants, contractors and skilled laborers during the next 12 months on
account of our planned gold production in 2007 at our Kwabeng and Pameng
Projects. Our current business strategy is that we plan to obtain technical
resources under contract where possible as Management believes that this
strategy, at its current level of development, provides the best services
available in the circumstances, leads to lower overall costs, and provides the
best flexibility for our business operations.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2005 COMPARED TO THE YEAR ENDED DECEMBER 31, 2004
Our loss for the year ended December 31, 2005 was $272,572 as compared
to a loss of $398,533 for the year ended December 31, 2004, a decrease of
$125,961. During the years ended December 31, 2005 and 2004, we generated nil
revenue. We incurred expenses of $821,040 in the year ended December 31, 2005 as
compared to $488,903 in the year ended December 31, 2004, an increase of
$332,137. The significant increase in expenses in the year ended December 31,
2005 can be primarily attributed to (i) exploration costs of $476,223 incurred
mostly in connection with an exploration program at our Banso and Muoso Project
and care and maintenance costs for our Kwabeng and Pameng Projects as compared
to $312,029 expended on these projects in the year ended December 31, 2004; and
(ii) general and administrative expenses of $416,639 as compared to $215,362 for
the year ended December 31, 2004. Significant increases were for management and
consulting fees (2005 - $145,594; 2004 - $10,000) and for stock-based
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compensation (2005 - $41,022; 2004 - $Nil). These increases were due to (i)
consulting fees in the amount of $97,767 paid to two officers (one, a former
officer and one, a current officer), as consultants and various geological,
financial, administrative and accounting consultants, to perform various
functions for our Company; and (ii) the granting of 720,000 options to a former
officer and 300,000 stock options to our CEO during 2005. No stock options were
granted in 2004.
Despite the increase in expenditures, our loss for the year ended
December 31, 2005 was less than our loss for the year ended December 31, 2004.
This was due to a large increase in income from cash balances and trading
securities. Trading securities were comprised mostly of investments in common
shares and income trust units of resource companies. Realized gains on the sale
of trading securities (2005 - $160,170; 2004 - $1,295) and unrealized gains on
trading securities held (2005 - $323,624; 2004 - $66,286) increased
significantly. As well, other income, comprised of interest income and dividend
income from the income trust units, increased from $22,789 in 2004 to $104,763
in 2005.
Our basic and diluted loss per share for the year ended December 31,
2005 was 0.01 compared to $0.01 per share for the year ended December 31, 2004.
The weighted average number of shares outstanding was 42,075,408 at December 31,
2005 compared to 65,660,173 for the year ended December 31, 2004. The decrease
in the weighted average number of shares outstanding can be attributed to the
cancellation of 47,000,000 shares during 2005 by one current and one former
officer and director of our Company as a condition to our acquisition of XG
Mining.
NINE MONTHS ENDED SEPTEMBER 30, 2006 COMPARED TO SEPTEMBER 30, 2005
Our loss for the nine months ended September 30, 2006 was $1,375,973 as
compared to income of $197,803 for the nine months ended September 30, 2005, an
increase of $1,573,776. During the nine months ended September 30, 2006 and
2005, we generated nil revenue. We incurred expenses of $1,113,030 in the nine
months ended September 30, 2006 as compared to $320,569 in the nine months ended
September 30, 2005, an increase of $792,461. The significant increase in
expenses in the nine months ended September 30, 2006 can be primarily attributed
to (i) exploration costs of $536,633 incurred mostly in connection with our
exploration programs at our Banso and Muoso Project, our Apapam Project and care
and maintenance costs for our Kwabeng and Pameng Projects as compared to
$186,227 for the nine months ended September 30, 2005; and (ii) general and
administrative expenses of $678,195 as compared to $208,836 for the nine months
ended September 30, 2005. Significant increases were for management and
consulting fees (2006 - $318,882; 2005 - $67,909) and for stock-based
compensation (2005 - $131,647; 2004 - $20,511). These increases were due to (i)
an aggregate of $267,595 for consulting fees paid to former officers and to
current officers, either directly or indirectly and an aggregate of $51,287 paid
to various geological, financial, administrative and accounting consultants, to
perform various functions for our Company, subsequent to September 30, 2005; and
(ii) the vesting of 214,805 stock options during the nine months ended September
30, 2006.
Other items totaled a loss of $262,943 for the nine months ended
September 30, 2006 as compared to a gain of $518,372 for the nine months ended
September 30, 2005. Realized gains on the sale of trading securities (2006 -
$126,798; 2005 -$150,932) reflects comparable trading, unrealized losses on
trading securities (2006 - $462,269; 2005 - gain of $327,680) reflects a general
decline in the value of resource company investments after a significant
increase during the year ended December 31, 2005, other income (2006 - $131,981;
2005 - $60,698) reflects the increase in dividend income from holding more
income trust units for longer periods, and interest expense (2006 - $57,506;
2005 - $20,938) mostly reflects the interest on convertible debentures which
were outstanding for only the final quarter of the period ended September 30,
2005 and for the entire period ended September 30, 2006.
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Our basic and diluted loss per share for the nine months ended
September 30, 2006 was $0.05 compared to $0.00 per share for the nine months
ended September 30, 2005. The weighted average number of shares outstanding was
26,320,756 for the nine months ended September 30, 2006 compared to 46,048,227
for the nine months ended September 30, 2005. The decrease in the weighted
average number of shares outstanding can be attributed to the cancellation of
47,000,000 shares during the year ended December 31, 2005 by one current and one
former officer and director of our Company as a condition to our acquisition of
XG Mining.
LIQUIDITY AND CAPITAL RESOURCES
Our principal source of funds is our available resources of cash and
cash equivalents and investments in trading securities, as well as debt and
equity financings.
LIQUIDITY DISCUSSION
Net cash provided by financing activities was $2,090,995 for the nine
months ended September 30, 2006 as compared to net cash provided by financing
activities of $1,323,218 for the nine months ended September 30, 2005. This
change is primarily attributable to $2,097,995 (2005 - $414,420) we received
from the sale of trading securities during the nine months ended September 30,
2006.
As of September 30, 2006, we had working capital equity of $3,426,518,
comprised of current assets of $3,513,872 less current liabilities of $87,354.
Our current assets were comprised mostly of $760,696 in cash and cash
equivalents and $2,697,092 in trading securities, which is based on our analysis
of the ready freely saleable nature of the securities including an existing
market for the securities, the lack of any restrictions for resale of the
securities and sufficient active volume of trading in the securities. Our
trading securities are held in our investment portfolio with an established
brokerage in Canada in which we primarily invest in the common shares and income
trust fund units of publicly traded resource companies. The trading securities
held are in companies listed on The Toronto Stock Exchange and can be sold at
any time. While we believe that these trading securities can be readily sold and
converted to cash as need to provide funds for ongoing operations, as with most
marketable equity securities there is always the chance that we will not be able
to readily liquidate these securities as needed or that we will receive the
amount we carry the securities for in the event of a sale.
We currently and historically have invested a majority of our cash in
various trading equity securities in an effort to increase the rate of return on
our cash. U.S. companies that have more than 100 shareholders or are publicly
traded in the U.S. and (i) are, or hold themselves out as being, engaged
primarily in the business of investing, reinvesting or trading in securities, or
(ii) are engaged or proposes to engage in the business of investing,
reinvesting, owning, holding, or trading in securities, and owns or proposes to
acquire investment securities having a value exceeding 40 percentum of the value
of such issuer's total assets (exclusive of Government securities and cash
items) on an unconsolidated basis, are subject to regulation under the
Investment Company Act of 1940. We do not believe we are an "investment company"
within the scope of the Investment Company Act of 1940, since we do not hold
ourselves out as being, engaged primarily in the business of investing,
reinvesting or trading in securities and the amount of our investment in trading
securities is less than 40 percentum of the value of our total assets (exclusive
of Government securities and cash items).
Unrealized gain on marketable securities held for sale, net of income
tax, represents the change in the fair value of these securities as of the end
of the financial reporting period. For the nine months ended September 30, 2006,
we recognized an unrealized loss of $462,269 on marketable securities held for
sale, net of income tax, as compared to an unrealized gain of $327,680 for the
nine months ended September 30, 2005. The change reflects a general decline in
the value of resource company investments after a significant increase during
the year ended December 31, 2005.
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Since we have received no revenue from the production of gold since
inception, we have historically relied on equity and debt financings to finance
our ongoing operations. Existing working capital, and possible debt instruments,
anticipated warrant exercises, further private placements and anticipated cash
flow are expected to be adequate to fund our operations over the next year. We
have no lines of credit or other bank financing arrangements. Generally, we have
financed operations to date through the proceeds of the private equity
financings and a debt financing. For 2007, in connection with our business plan,
management anticipates operating expenses and capital expenditures as follows:
(i) $500,000 for exploration; (ii) $10,700,000 for mine operating, capital and
administration cost for the development and production of our gold projects;
(iii) $1,200,000 for administrative costs. At September 31, 2006, we had working
capital of approximately $3,400,000, consisting of $760,000 in cash and
$2,697,092 in trading securities. Absent immediately generating revenues or
raising additional financing, we estimate that we will be able to continue
operations for approximately 6 months. Until we achieve profitability, we will
need to raise additional capital. We intend to finance these expenses with
further sales of our equity securities or debt securities, or from investment
income. Thereafter, we expect we will need to raise additional capital to meet
long-term operating requirements. Additional financing may not be available upon
acceptable terms, or at all. If adequate funds are not available or are not
available on acceptable terms, we may not be able to take advantage of
prospective new business endeavors or opportunities or existing agreements and
projects which could significantly and materially restrict our business
operations.
The independent auditors' report accompanying our December 31, 2005 and
December 31, 2004 consolidated financial statements contains an explanatory
paragraph expressing substantial doubt about our ability to continue as a going
concern. The consolidated financial statements have been prepared "assuming that
we will continue as a going concern", which contemplates that we will realize
our assets and satisfy our liabilities and commitments in the ordinary course of
business.
RECENT CAPITAL RAISING TRANSACTIONS
In March 2006, we completed a private equity financing for net proceeds
of $496,420 whereby we sold 792,029 shares of our common stock. As well, we
received $81,375 from the exercise of share purchase warrants. The securities
were sold to two US persons and six non US persons, and the transaction was
exempt from registration under the Securities Act pursuant to section 4(2) and
Rule 506 thereunder and Regulation S.
In April 2006, an aggregate of 177,200 previously issued share purchase
warrants were exercised by 15 non US persons for which we received gross
proceeds of $132,900.
In June 2006, we completed a private equity financing for net proceeds
of $468,300 whereby we sold 578,112 shares of our common stock and 289,056
warrants at an exercise price of $1.50 per share expiring on June 16, 2007. The
securities were sold to six US persons and four non US persons, and the
transaction was exempt from registration under the Securities Act pursuant to
section 4(2) and Rule 506 thereunder and Regulation S.
In July 2006, we completed a private equity financing to non US persons
pursuant to Regulation S of the Securities Act for net proceeds of $1,018,800
whereby we sold 1,132,000 shares of our common stock and 566,000 warrants at an
exercise price of $1.50 per share expiring on October 31, 2007.
In November 2006, we completed a private equity financing to non US
persons pursuant to Regulation S of the Securities Act for net proceeds of
$310,200 whereby we sold 282,000 shares of our common stock and 141,000 warrants
at an exercise price of $1.50 per share expiring on October 31, 2007.
As of December 31, 2005, we had working capital equity of $2,745,926
(2004 - $981,740), comprised of current assets of $3,138,250 (2004 - $1,089,646)
less current liabilities of $392,324 (2004 - $107,906). Our current assets were
comprised mostly of $458,376 (2004 - $231,480) in cash and cash equivalents and
$2,647,207 (2004 - $849,791) in trading securities.
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During the year ended December 31, 2005, net cash flows from financing
activities were $2,035,149 (2004 - $1,368,992). These funds were raised through
the issuance of convertible debentures (2005 - $900,000; 2004 - $Nil) and the
sale of common stock, net of financing costs (2005 - $1,181,351; 2004 -
$1,368,992).
In June 2005, we completed a private equity financing of $294,920
whereby we sold 536,218 equity units comprised of 536,218 shares of our common
stock and 268,110 underlying warrants. The securities were sold to one US person
and 15 non US persons, and the transaction was exempt from registration under
the Securities Act pursuant to section 4(2) and Rule 506 thereunder and
Regulation S. In July 2005, we completed an aggregate debt financing of $900,000
which was secured by the issuance of convertible debentures (described elsewhere
in this Prospectus). In August 2005, we completed a private equity financing of
$165,000 whereby we sold 300,000 equity units comprised of 300,000 shares of our
common stock and 150,000 underlying warrants. In November 2005, we completed a
private equity financing of $852,145 whereby we sold 1,549,354 shares of our
common stock.
During fiscal year 2004, we completed two private equity financings for
an aggregate of 4,129,400 units for net proceeds of $1,368,992. The securities
were sold to 12 US persons and 34 non US persons, and the transaction was exempt
from registration under the Securities Act pursuant to section 4(2) and Rule 506
thereunder and Regulation S. For every two shares held, we also issued one
common stock purchase warrant to purchase a share of our common stock at an
exercise price of $.75 per share for an aggregate of 2,064,700 warrants (the
"2004 WARRANTS"). The 2004 Warrants were exercisable for a term of one year and
were subsequently extended on approval by our Board to March 31, 2006. As of
March 31, 2006, 108,500 of the 2004 Warrants were exercised and the remaining
1,956,200 2004 Warrants expired unexercised.
MATERIAL COMMITMENTS
MINERAL PROPERTY COMMITMENTS
Save and except for fees payable from time to time to (i) the Minerals
Commission for an extension of an expiry date of a prospecting licence or mining
lease or annual operating permits; (ii) the Environmental Protection Agency
("EPA") in Ghana for the issuance of permits prior to the commencement of any
work at a particular concession or the posting of a bond in connection with any
mining operations undertaken by our Company; and (iii) a legal obligation
associated with our mineral properties for clean up costs when work programs are
completed, we are committed to expend an aggregate of less than $500 in
connection with annual or ground rent and mining permits to enter upon and gain
access to the following concessions and such other financial commitments arising
out of any approved exploration programs in connection therewith:
(a) the Kwabeng concession (Kwabeng Project);
(b) the Pameng concession (Pameng Project); and
(c) the Banso and Muoso concessions (Banso and Muoso Project);
(d) the Apapam concession (Apapam Project);
(e) the Edum-Banso concession (Edum Banso Project).
With respect to the Kwabeng and Pameng Projects, upon and following the
commencement of gold production, a royalty of 3% of the net smelter returns is
payable the Government of Ghana.
With respect to the Edum Banso Project:
(i) $5,000 is payable to Adom Mining Limited ("ADOM") on the
anniversary date of the Option Agreement in each year that
we hold an interest in the agreement;
(ii) $200,000 is payable to Adom when the production of gold is
commenced (or $100,000 in the event that less than 2
million ounces of proven and probable reserves are
discovered on our project at this concession; and
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(iii) an aggregate production royalty of 2% of the net smelter
returns ("NSR") from all ores, minerals and other products
mined and removed from the project, except if less than 2
million ounces of proven and probable reserved are
discovered in or at the Project, then the royalty shall be
1% of the NSR.
OIL AND GAS COMMITMENTS
We have made an application to the Ghana National Petroleum Corporation
("GNPC") for a petroleum agreement to acquire an oil interest in Ghana. The
application is currently under review by GNPC and other relevant Ghanaian
governmental authorities. As we have not yet been awarded any oil interest, we
have not made any financial commitment with respect to expenditures as none can
be determined at this time, except for an initial processing fee of $7,500
payable to the Minister of Energy.
REPAYMENT OF CONVERTIBLE DEBENTURES AND ACCRUED INTEREST
We are committed to repay our Convertible Debenture holders outstanding
amounts of principal and interest calculated at 7% per annum on an aggregate
face value of $900,000. Interest only payments are payable quarterly on the last
days of September, December, March and June in each year of the term or until
such time that the principal has been repaid in the full. The Convertible
Debenture holders are entitled, at their option, to convert, at any time and
from time to time, until payment in full of their respective Convertible
Debentures, all or any part of the outstanding principal amount of the
Convertible Debenture, plus the Accrued Interest, into shares (the "CONVERSION
SHARES") of our common stock at the conversion price of $1.00 per share (the
"CONVERSION PRICE"). Provided there is a registration statement then in effect
covering the Conversion Shares, or the Conversion Shares may otherwise be resold
pursuant to Rule 144, the outstanding principal amount of each Convertible
Debenture, and all accrued but unpaid interest, shall automatically be converted
into shares of our common stock, at the Conversion Price, in the event that our
common stock trade for 20 consecutive trading days (a) with a closing bid price
of at least $1.50 per share and (b) a cumulative trading volume during such
twenty (20) trading day period of at least 1,000,000 shares.
FURTHER MATERIAL COMMITMENTS
Further material commitments are subject to new funding arrangements to
be obtained or agreements not yet formalized.
PURCHASE OF SIGNIFICANT EQUIPMENT
We do not expect to purchase significant ore processing and gold
recovery equipment due to the availability of our floating placer gold ore
washing and processing plant, manufactured by IHC in the Netherlands and kept on
care and maintenance since 1994 at our Kwabeng Project. Once our full scale mine
plan has been thoroughly reviewed, we may determine to purchase or contract from
third parties the earthmoving and ancillary earthmoving equipment fleet with
respect to our gold production at our Kwabeng and Pameng Projects during the
next 12 months.
OFF BALANCE SHEET ARRANGEMENTS
We have no off balance sheet arrangements.
SIGNIFICANT ACCOUNTING POLICIES
APPLICATION OF CRITICAL ACCOUNTING POLICIES
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our financial
statements.
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MINERAL PROPERTIES
The valuation of our interest in the Kwabeng and Pameng Projects is based on a
cash flow analysis of the property. As such, the valuation could be affected by
the following:
Price of gold - Fluctuations in the price of gold could materially affect future
revenues. The price used by our Company was an average price over three years.
Grade and recovery - If, after mining commences, the average grade or the
average recovery rate is found to be different than our Company's estimates, our
net income projections could change materially. We had an independent geologist
provide estimates and also reviewed the average grade and recovery in previous
production reports from the Kwabeng and Pameng Projects.
Production costs - If, after mining commences, the cost of producing gold
differs materially from our Company's estimates, our net income projections
could change materially. We had an independent geologist provide estimates.
Ghanaian laws and regulations - If the Government of Ghana approves or changes
laws and regulations that affect mining operations in Ghana, our net income
projections could change materially.
ASSET RETIREMENT OBLIGATION
The valuation of our Company's asset retirement obligation is based on estimates
provided by an independent geologist. As such, the valuation could be affected
by the following:
Costs - When work actually commences on asset retirement obligations, actual
costs could materially differ from what has been estimated. This would
materially affect the value of the obligation.
Ghanaian laws and regulations - If the Government of Ghana approves or changes
laws and regulations that affect mining operations in Ghana, the cost of meeting
our asset retirement obligations could change materially.
DEFERRED INCOME TAXES
As we have no history of profitability and currently have no revenues, we have
recognized a 100% valuation on our future tax assets. If our Company becomes
profitable in the future, a material amount of these future tax assets could
actually be realized.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 153, "Exchanges of Non monetary Assets -
an amendment of APB Opinion No. 29" ("SFAS 153") which amends Accounting
Principles Board Opinion No. 29, "Accounting for Non monetary Transactions" to
eliminate the exception for non monetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of non monetary assets
that do not have commercial substance. A non monetary exchange has commercial
substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. SFAS 153 is effective for non
monetary asset exchanges occurring in fiscal periods beginning after June 15,
2005.
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In December 2004, FASB issued Statement of Financial Accounting
Standards No. 123R, "Share Based Payment" ("SFAS 123R"). SFAS 123R supersedes
APB 25 and its related implementation guidance by requiring entities to
recognize the cost of employee services received in exchange for awards of
equity instruments based on the grant-date fair value of those awards (with
limited exceptions) and revises SFAS 123 as follows:
(i) Public entities are required to measure liabilities incurred to
employees in share-based payment transactions at fair value and
nonpublic entities may elect to measure their liabilities to employees
incurred in share-based payment transactions at their intrinsic value
whereas under SFAS 123, all share-based payment liabilities were
measured at their intrinsic value.
(ii) Non public entities are required to calculate fair value using an
appropriate industry sector index for the expected volatility of its
share price if it is not practicable to estimate the expected
volatility of the entity's share price.
(iii) Entities are required to estimate the number of instruments for which
the requisite service is expected to be rendered as opposed to
accounting for forfeitures as they occur.
(iv) Incremental compensation cost for a modification of the terms or
conditions of an award is measured by comparing the fair value of the
modified award with the fair value of the award immediately before the
modification whereas SFAS 123 required that the effects of a
modification be measured as the difference between the fair value of
the modified award at the date it is granted and the award's value
immediately before the modification determined based on the shorter of
(1) its remaining initially estimated expected life or (2) the expected
life of the modified award.
SFAS 123R also clarifies and expands guidance in several areas,
including measuring fair value, classifying an award as equity or as a
liability and attributing compensation cost to reporting periods. SFAS
123R does not change the accounting guidance for share-based payment
transactions with parties other than employees provided in SFAS 123 as
originally issued and Emerging Issues Task Force No. 96-18 "Accounting
for Equity Instruments that are Issued to Other Than Employees for
Acquiring or in Conjunction with Selling, Goods and Services" ("EITF
96-18"). SFAS 123R also does not address the accounting for employee
share ownership plans which are subject to Statement of Position 93-6,
"Employers' Accounting for Employee Stock Ownership Plans". Public
entities (other than those filing as small business issuers) will be
required to apply SFAS 123R as of the first annual reporting period
that begins after June 15, 2005. Public entities that file as small
business issuers will be required to apply SFAS 123R in the first
annual reporting period that begins after December 15, 2005. For
nonpublic entities, SFAS 123R must be applied as of the beginning of
the first annual reporting period beginning after December 15, 2005.
In May 2005, FASB issued Statement of Financial Accounting Standards
No. 154, "Accounting Changes and Error Corrections - A Replacement of
APB Opinion No. 20 and FASB Statement No. 3" ("SFAS 154") which is
effective for fiscal years ending after December 15, 2005. SFAS 154
requires that changes in accounting policy be accounted for on a
retroactive basis.
The adoption of these new pronouncements is not expected to have a
material effect on our Company's consolidated financial position or results of
operations.
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BUSINESS OF OUR COMPANY
BUSINESS DEVELOPMENT
Our predecessors were inactive from inception until October 21, 2003,
except for some non-mining business ventures, raising capital to fund such
ventures and two stock consolidations.
On October 31, 2003, we entered into a share exchange agreement (the
"SHARE EXCHANGE AGREEMENT") with Xtra Energy (formerly XGRI) and its
shareholders (the "XTRA ENERGY SHAREHOLDERS"). Pursuant to the terms of the
Share Exchange Agreement: (i) we acquired 100% of the issued and outstanding
shares of common stock of Xtra Energy from the Xtra Energy Shareholders; and
(ii) in exchange, we issued 10,070,000 shares of our common stock to the Xtra
Energy Shareholders in proportion to their respective holdings in Xtra Energy.
As a result of this transaction, Xtra Energy became our wholly owned subsidiary.
Since our acquisition of Xtra Energy in October 2003, we have been
primarily engaged in the business of exploration for gold mineralization and the
development and production from our projects. Since February 2004, we have been
focused on exploration for gold mineralization and the development and
production from our projects in the Republic of Ghana ("GHANA"), West Africa,
through our Ghanaian subsidiaries, Xtra-Gold Exploration Limited ("XGEL") and
Xtra-Gold Mining Limited ("XG MINING").
At the time of our acquisition of Xtra Energy on October 28, 2003, Xtra
Energy held an option to earn up to 90% of an 80% interest in an early stage
mineral exploration property located in Switzerland (the "SWISS PROPERTY") held
by CaribGold Minerals Inc. ("CARIBGOLD"). We would have earned this 90% interest
in the Swiss Property by incurring exploration expenditures of a least
CAD$200,000 (USD$176,242) on or before October 28, 2004. Our Board subsequently
decided to let the option expire and to instead use our capital to focus on the
acquisition of mineral properties in Ghana. None of the CAD$200,000
(USD$152,532) was expended, except for approximately $1,200 which was paid for
an annual exploration fee to the relevant government authorities and storage
fees for core samples. Paul Zyla, our former President and Chief Executive
Officer, was the President and a director of CaribGold at the time of this
transaction. Mr. Zyla owned 647,500 (.550%) of the 11,758,232 issued and
outstanding shares of CaribGold at the time of this transaction.
Since October 2004 until October 2005, Xtra Energy had been an inactive
subsidiary of our Company. In October 2005, the board of directors of Xtra
Energy decided to commence preliminary activities towards its business model on
the oil and gas industry. As a result of Xtra Energy being a new entrant into
the oil and gas industry and currently having no activities thereto, there is no
available information regarding production or revenue generation.
In October 2005, we also became engaged in the business of oil and gas
through two other wholly-owned subsidiaries; namely Xtra Energy (formerly XGRI)
and XOG, by way of XOG acquiring a 5% participating interest in one oil and gas
property located in southeastern Saskatchewan, Canada (the "SASKATCHEWAN
PROJECT").
Since the incorporation of our wholly-owned subsidiary, XOG Ghana on
March 2, 2006, its activities in the oil and gas industry have been limited to
organizational efforts and pursuing a petroleum interest in Ghana. In April
2006, our subsidiary XOG Ghana made an application to GNPC to acquire a
petroleum agreement for an oil interest in Ghana. Our application to GNPC is
still under review and final approval of our application is pending. Once
negotiations have been completed between GNPC and XOG Ghana (i) a purchase
agreement will be entered into and sent to the Ghana Cabinet for approval; (ii)
upon receiving Cabinet approval, the purchase agreement is then sent to
Parliament for ratification; and (iii) upon receiving ratification from
Parliament, the purchase agreement will become effective and a work program can
be commenced. We anticipate that this approval process will take approximately
nine months from the time of submission of the foregoing application. Other than
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making this application, XOG Ghana has undertaken no activities and has not
formulated a business plan as to its future plans if it receives approval of the
application. As a result of XOG Ghana being a new entrant into the oil and gas
industry and currently having no activities thereto, there is no available
information, regarding production or revenue generation at this time.
In October 2006, we sold our 5% interest to an arm's length oil and gas
Company, TriStar Oil & Gas Partnership, a general partnership, having an office
in Calgary, Alberta, pursuant to the terms of a purchase and sale agreement for
a consideration of CAD$350,000 (USD$314,258).
OUR BUSINESS IN THE GOLD INDUSTRY
We are currently engaged in the exploration, development and early
production of mining of gold properties exclusively in Ghana. Our interests in
our Projects are held by our Ghanaian subsidiaries, through prospecting
licenses, an option agreement in connection with a prospecting license and
mining leases granted by the Government of Ghana for licensed or leased areas
respectively located within and upon concessions. A concession is a grant of a
tract of land made by a government or other controlling authority in exchange
for an agreement that the land will be used for a specific purpose.
Exploration means we are engaged in the search for mineral deposits or
reserves which could be economically and legally extracted or produced and
typically includes the review of existing data, grid establishment, geological
mapping, geophysical surveying, trenching and pitting to test the areas of
anomalous soil samples and RC and/or diamond drilling to test targets followed
by infill drilling, if successful, to define reserves.. Development stage
generally means the development of a placer or lode gold project includes
detailed exploration, reserve definition, preparation of a feasibility study, an
environmental impact study and a detailed mine plan, permitting and construction
of a mine. Production means the processing of gold bearing ore through some type
of treatment plant to extract the gold from the ore.
We currently have six projects as follows, as more fully described
herein:
o Kwabeng Project. Our interest in this project is held by a mining
lease. In January 2007 we commenced early stage production operations
(Bulk Test) at our Kwabeng Project and it will be conducted during
February and March of 2007. We are undertaking the Bulk Test to
determine the economic feasibility of carrying out our full scale mine
plan.
o Pameng Project. Our interest in this project is held by a mining lease.
This project is in the development stage. Upon completion of our full
mine plan at our Kwabeng Project, we plan to then initiate production
mining operations at our Pameng Project.
o Banso Project. Our interest in this project is held by a prospecting
license. This project is in the exploration stage.
o Muoso Project. Our interest in this project is held by a prospecting
license. This project is in the exploration stage.
o Apapam Project. Our interest in this project is held by a prospecting
license. This project is in the exploration stage.
o Edum Banso Project. We have an option to acquire the interest in a
prospecting license in Edum Banso. Although we have not commenced any
exploration activities on this project, this project is in the
exploration stage.
Our Banso and Muoso Project, Apapam and Edum Banso concessions
represent "grassroots" or "greenfields" mineral exploration projects. These
exploration projects are each at an early stage of evaluation and no mineralized
material or reserve estimates have been made. The present exploration activities
on these concessions, including grid establishment, soil sampling,
prospecting/geological mapping, pitting/trenching and geophysics, are aimed at
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identifying lode gold (hardrock) mineral occurrences to be further evaluation
through drilling. We have completed preliminary lode gold exploration programs
at our Banso and Muoso and Apapam Projects and awaiting results We are preparing
a preliminary lode gold exploration program at our Edum Banso Project. We have
not yet produced any gold and we will require substantial additional capital in
order to do so.
THE GOLD INDUSTRY
THE GOLD INDUSTRY IN GHANA
The mining and minerals development industry in Ghana continues to be
focused on gold. Ghana is the second largest gold producer in Africa and is also
a major producer of bauxite, manganese and diamonds.
GEOLOGICAL SETTING
Ghana is situated mostly within the West African Craton, which
stabilized during the early Proterozoic Period some two billion years ago. In a
series of tectonic processes, large areas were folded, faulted, metamorphosed,
subjected to igneous activity, erosion and sedimentary processes, giving rise to
a series of gold belts. Gold deposits can be categorized as Birimian gold and
Tarkwaian gold. Birimian supracrustal rocks of West Africa, which extend from
Ghana westward to Senegal and Mauritania and northward into Burkina Faso, are
richly endowed with Proterozoic greenstone-type lode gold deposits. Deposits are
variable and structurally complex, featuring gold that occurs in both
quartz-filled shear zones and in altered rocks adjacent to shear zones. The
metamorphosed volcanic belts in which they are found average between 15
kilometers and 40 kilometers in width and cover approximately one-sixth of
Ghana's surface area. The bulk of Ghanaian gold is derived from Birimian rocks.
The second category is Tarkwaian gold. Auriferous quartz-pebble conglomerate
deposits occur within the Tarkwaian supercrustal rocks of Ghana. The matrix
consists of fine-grained quartz and black sands (mainly hematite, and to a
lesser extent, ilmenite, magnetite and rutile) and over 90% of the pebbles are
vein-quartz and the balance, quartzite and phyllite (1).
Ghana is covered by the Paleoprotoerozoic rocks of the Birimian Super
group and the overlying clastic sedimentary Tarkwaian group. A result of a
series of erosional events, significant portions of these rocks have been
re-deposited as placer formations in a number of streams and channels. Placer
gold deposits, which are also referred to as alluvial gold, are found in the
majority of rivers draining Birimian rocks. We have determined that large
deposits of placer gold also occur along the terraces, floodplains, channels and
river beds of the Offin, Pra, Ankobra, Birim and Tano rivers where large
Birimian and Tarkwaian gold deposits have experienced several episodes of
erosion and subsequent deposition
ORGANIZATION OF MINING OPERATORS IN GHANA
Operators of gold projects are awarded mining leases by the Government
of Ghana to mine in a designated area for a period of time, usually for 30
years.
MINERAL RIGHTS
The governing mining law of Ghana is the Minerals and Mining Act, 2006
(Act 703) (the "MINING ACT") which was enacted in March 2006 by the President
and Parliament of Ghana. This law and associated legislation combines regulation
of the mining industry with fiscal incentives for investors. Some of the more
significant features of the legislation are as follows:
1. Every mineral in its natural state in, under or upon land in Ghana,
rivers, streams, water-courses throughout the country, the exclusive
economic zone and an area covered by the territorial sea or continental
shelf is the property of the Republic and is vested in the President in
trust for the people of Ghana.
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2. The Mining Act established a new cadastral system of mineral title
administration. It is a system under which the country (Ghana) is
divided into geographical blocks of 21 hectares each. Applications for
mineral rights may be made in multiples of blocks which should be
contiguous. Fractions of blocks may not be applied for except for
blocks intended for small scale mining and blocks part of which lie
outside the country; in which case, such part-blocks are considered for
purposes of the cadastral system as full blocks. Three main types of
mineral rights in the form of licences may be granted under the Mining
Act, to coincide with the three key stages of the mining cycle, namely
reconnaissance, prospecting and development.
TYPE OF LICENCE PURPOSE AREA LICENCE PERIOD
Reconnaissance ....... to conduct reconnaissance maximum of 12 months
operations in search for 5,000 contiguous renewable
for specific minerals (not blocks of 21
including drilling or
excavations)
Prospecting License .. to intentionally explore or maximum of 2 years
search for specific minerals 750 contiguous renewable with 50%
and determining their extent blocks of 21 reduction of area
and economic value hectares each upon renewal
Mining Lease ......... to intentionally extract or maximum of 30 years
win specific minerals 300 contiguous renewable
blocks per lease
3. Negotiable matters are the deferment of royalty payments, work programs
and the level of export earnings retention allowances and the detailed
provisions of a stability agreement or development agreement provided
for respectively under sections 48 and 49 of the Mining Act.
4. In accordance with section 14(1), "a mineral right shall not in whole
or in part be transferred, assigned, mortgaged or otherwise encumbered
or dealt in, in a manner without the prior approval in writing of the
Minister (of Lands, Forestry and Mines), which approval shall not be
unreasonably withheld or given subject to unreasonable conditions".
5. The legislation is to be applied equally to Ghanaians and foreigners,
except for the provisions relating to artisanal mining and exploitation
of construction minerals which is reserved for Ghanaians.
6. The Government of Ghana is entitled to a free carried equity interest
of 10% in mining ventures. It also has the option of purchasing an
additional 20% at a fair market price. See the section entitled
"Ghanaian Law - Ghanaian Ownership and Special Rights" for more
detailed disclosure.
7. Royalties vary form 3% to 6% of the gross value of minerals produced.
The variation is related to the "operating margin" and is designed to
prevent royalties becoming too onerous during times of low
profitability.
8. Section 10 of the Mining Act provides as follows:
"10. Unless otherwise provided in this Act, a mineral right shall not
be granted to a person unless the person is a body incorporated
under the Companies Code 1963 (Act 179), under the Incorporated
Private Partnerships Act 1962 (Act 152) or under an enactment in
force."
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This provision prohibits the grant of mineral rights which are defined
in the law to include reconnaissance licence, prospecting licence and
mining lease to natural persons unless a specific provision to the
contrary is made in the law. However, it should be noted that the
exceptions in this regard relate mainly to the grant of licences in
respect of (a) building and industrial minerals; and (b) small scale
mining to non-corporate persons who are citizens of Ghana. The
exceptions therefore do not apply to large scale mining.
In addition to being a corporate legal entity, an applicant is also
required to show financial and technical capability to carry out the
proposed mineral operations in respect of which the licence is being
applied for. Thus, section 11 of the Mining Act states that:
"11. An application for a mineral right shall be submitted to the
Minerals Commission in the prescribed form and shall be
accompanied with a statement providing,
(a) particulars of the financial and technical resources
available to the applicant for the proposed mineral
operations,
(b) an estimate of the amount of money proposed to be spent on
the operations,
(c) particulars of the programme of proposed mineral
operations, and
(d) particulars of the applicant's proposals with respect to
the employment and training in the mining industry of
Ghanaians."
KWABENG AND PAMENG, APAPAM, BANSO AND MUOSO AND EDUM BANSO PROJECTS
ACQUISITION OF XGEL AND XG MINING
On February 16, 2004, we entered into an offer to purchase (the
"ACQUISITION AGREEMENT") with Akrokeri-Ashanti Gold Mines Inc.
("AKROKERI-ASHANTI"), an unaffiliated third party, who at the time was the sole
shareholder of XGEL (formerly Canadiana Gold Resources Limited), a Ghanaian
corporation, to purchase 50,000 ordinary common shares, being all of the issued
and outstanding shares of XGEL (the "XGEL SHARES") for (i) $25,000 cash; (ii)
forgiveness of $175,000 in debt owed to XGEL by an affiliate of
Akrokeri-Ashanti; and (iii) agreeing to make a tender offer to Akrokeri-Ashanti
note holders and debenture holders (the "NOTE AND DEBENTURE HOLDERS") to
extinguish their debts totaling approximately CAD$5,936,700 (USD$4,824,232).
Akrokeri-Ashanti had pledged as security to its Note and Debenture Holders, 90%
of the issued and outstanding shares (the "GOLDENRAE SHARES") of its subsidiary,
XG Mining (formerly Goldenrae Mining Company Limited). The remaining 10% of the
issued and outstanding shares of XG Mining was at the relevant time and
continues to be held by the Government of Ghana in accordance with governing
mining laws and regulations of Ghana.
Under the Acquisition Agreement, if we abandoned our bid to the Note
and Debenture Holders, or were unsuccessful in acquiring the XG Mining Shares by
December 31, 2004, then we would be required to reconvey the XGEL shares back to
Akrokeri-Ashanti. On December 22, 2004, we succeeded in our offer to the Note
and Debenture Holders and exchanged one-half share of our common stock for every
CAD$1.00 (USD$.90) principal amount of notes and debentures. We therefore issued
a total of 2,698,350 shares of our common stock for the CAD$5,936,700
(USD$4,824,232) outstanding principal amount of the notes and debentures.
Following the completion of the foregoing transaction, XG Mining became our
subsidiary as to a 90% interest. The Government of Ghana holds the remaining
10%.
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MAP OF OUR PROJECTS
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THE KWABENG AND PAMENG PROJECTS
Three concessions totaling 118.92 sq km; namely our Kwabeng
Project,Pameng Project and ourApapam Project, which is located to the south of
our Kwabeng and Pameng Projects, are contiguous to our Banso and Muoso Project.
ACCESS AND LOCATION
Access to our Kwabeng Project can be gained by driving northwest from
the City of Accra on the Accra-Kumasi Trunk Road, which is the main paved
national highway, for approximately 110 km until arrival at the road sign for
"Kwabeng" where we have posted a sign reading "Xtra-Gold Mining Ltd. - Kwabeng".
Make a left hand turn on the road where a sign reads Town of Anyinam and drive
southwest approximately 10 km until the Town of Kwabeng is reached where our
Field Camp is located on the right side of the road approximately 50 metres from
the Anyinam to Kwabeng road. Our Field Camp is located approximately 500 metres
from the Town of Kwabeng. The eastern boundary of our Kwabeng Project is
approximately 500 metres to the east of our Field Camp.
Access to our Pameng Project can be gained by driving northwest from
the City of Accra on the Accra-Kumasi Trunk Road, which is the main paved
national highway, for approximately 125 km until arrival at the village of
Pameng where there is a road sign reading "Pameng". Make a left hand turn at the
Pameng sign and drive southwest approximately 2 km to reach our Pameng
concession. Our Pameng concession is located approximately 15 km south-southwest
from our Field Camp.
We hold 30-year mining leases expiring on July 26, 2019 on our Kwabeng
and Pamengmining concessions (see "Mining Leases - Kwabeng and Pameng Projects")
anda prospecting licence for our Apapam Project (see "The Apapam Project") .
These three Projects have had very little exploration for lode source
gold deposits; however, there has been detailed exploration for placer gold
deposits. The Kwabeng, Pameng and Apapam Projects contain historical proven
reserves estimated at 216,800 ounces of gold in accordance with a feasibility
study prepared in 1994 by Minproc Engineers Pty Ltd. The proven reserves of
216,800 ounces were confirmed in an evaluation prepared by John Rae, P. Geo. in
March 2006. In addition to the historical stated proven reserves, there is
potential to add to the placer gold proven reserves with further exploration.
The placer gold deposit currently located at our Kwabeng concession was
mined by the former owner in the early 1990's for 15 months and produced
approximately 16,800 ounces of gold before operations were ceased due to mining
difficulties as noted hereunder. The placer gold is contained in a gravel
deposit distributed across the floor of the river valleys west of the Atewa
Range. which can easily be excavated.
In addition to the two mining leases, XG Mining owns a floating placer
gold ore washing and processing plant (the "PLANT") and a functional living
compound for mining employees (the "FIELD CAMP") which is also comprised of
offices and facilities for stores, engineering and exploration activities. The
Plant and the Field Camp are located on property included in our Kwabeng
concession, close to the town of Kwabeng.
We have engaged experienced mining personnel with respect to our gold
mining effort including a Project Manager to oversee all mining operations at
our Kwabeng and Pameng Projects. We currently have approximately 46 mining
personnel. We have further engaged a Mine Manager who supervises all personnel
at our Plant, Field Camp and gold processing room ("GOLD ROOM") and a Management
Geologist who supervises the exploration and planning of daily mining activities
of our personnel in our Mining Department.
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In early 1990's, the former mining lessee invested approximately
$24,000,000 to open and operate a mine at the Kwabeng concession. The mining
operation lasted for 15 months and 16,800 ounces of gold was produced before the
mine was shut down.
The preceding mining effort failed as the former operator was unable to
achieve anticipated throughput due to the design and construction deficiencies
of the processing plant. Significant operational costs to sustain high
throughputs, a poor gold price, lack of funds to continue mining operations and
the lack of available qualified placer gold consultants, engineers and operators
which led to the engagement of expensive foreign personnel also contributed to
the failure of the previous mining effort.
We are able to address the foregoing past failings as we have: (i)
redesigned the processing plant to accommodate a higher capacity of throughput;
(ii) engaged experienced Ghanaian engineers, geological consultants and
accounting personnel; (iii) cash available to sustain our current mining effort
for approximately five to six months; and (iv) a plan to generate revenues from
our current mining effort in order to meet operational costs through the course
of our mine plan. Also, the current gold price (approximately $600 per ounce) is
significantly greater compared to the gold price during the previous mining
effort (approximately $300 per ounce). On the basis of our planned annual
production of approximately 20,000 ounces, we anticipate that our mine plan
could continue for at least 10 years, however, this will depend upon numerous
factors including the grade and commercial recoverability of the ore processed
and the selling gold price at the relevant time.
FLOATING GOLD ORE WASHING AND PROCESSING PLANT
The Plant was custom manufactured for the placer gold ores located on
the Kwabeng and Pameng concessions by IHC of the Netherlands and shipped to
Ghana in disassembled modules in the early 1990's while the Kwabeng mining lease
was held by the former owner, Goldenrae Mining Company Limited. The Plant is
made up of two major functional components: (i) a series of modular pontoons
which are assembled on-site to make up the floating barge portion of the plant;
and (ii) the gold ore processing and recovery equipment, power generation
equipment are installed, which is comprised of vibrating grizzly feeder,
scrubber, vibrating screen, a three stage IHC radial jig gold recovery unit and
provisions for the disposal of the barren processed gravels back into the mining
pit. The rated production capacity of the Plant is approximately 150 cubic
meters of ore gravels per hour and we anticipate that it will be operated
continuously by the staff to be hired at the commencement of full scale
production at our Kwabeng concession. The Plant is currently being operated on a
one 10 hour shift per day for six days of the week The Plant, and our Field Camp
thereto, is currently operated by generators since the area of our concession is
not yet connected to any electrical power generation facility. In light of the
current government imposed power shedding (outages), our Company has decided to
postpone connection of the Field Camp to the national power grid and will
continue to rely on its own generator systems. Currently, a new vibrating screen
deck and water supply pump have been installed and the Plant is fully
operational.
BULK TEST
We are currently conducting the ulk Test which is a large scale or bulk
sampling operation of approximately 230,000 cubic meters of placer gold material
located at our Kwabeng Project in order to determine the economic feasibility of
carrying out our full scale mine plan. We are currently collecting, processing
and analyzing the gold being recovered from the Bulk Test. We obtained the
necessary approvals and permits from the Ghanaian government authorities prior
to commencing the Bulk Test.
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MINING LEASES - KWABENG AND PAMENG PROJECTS
Our subsidiary, XG Mining, which is owned by us as to a 90% interest,
entered into two individual mining leases on July 26, 1989 with The Government
of the Republic of Ghana (the "GOVERNMENT OF GHANA"), who holds a 10% interest
in XG Mining, covering an area of 40.51 sq km with respect to the Kwabeng
concession and 44.76 sq km with respect to the Pameng concession (collectively,
the "LEASE AREA"), located in the East Akim District of the Eastern Region of
the Republic of Ghana. These mining leases have a 30 year term expiring on July
25, 2019. We have been granted surface and mining rights by the Government of
Ghana to work, develop and produce gold in the lease area (including processing,
storing and transportation of ore and materials). With respect to each mining
lease, we are: (i) required to pay applicable taxes and annual rental fees of
Cedis 15,500 (based on Cedis 500 per sq km) (USD$1.75) to the Government of
Ghana; and (ii) committed to pay a royalty in each quarter through the
Commissioner of Internal Revenue based on the production for that quarter within
30 days from the quarter end as well as a royalty on all timber felled in
accordance with existing legislation. Under the terms and conditions of each
mining lease, we are required to furnish (i) a report in each quarter not later
than 30 days after the quarter end to the Government Authorities in connection
with quantities of gold won in that quarter, quantities sold, revenue received
and royalties payable; (ii) a report half-yearly not later than 60 days after
the financial year end to the Government Authorities summarizing the results of
operations during the half year and records containing a description for the
proposed operations for the following year with an estimate of the production
and revenue to be obtained; (iii) a report not later than three months after the
expiration or termination of the mining lease, to the Government Authorities,
giving an account of the geology of the lease area including the stratigraphic
and structural conditions and a geological map on scale prescribed in the Mining
Regulations; (iv) a report to the Government Authorities of any proposed
alteration to its regulations and a report of the particulars of any proposed
transfer of any share of its capital stock representing 1% of more of the total
number of issued and outstanding shares; (v) a report to the Government
Authorities on the particulars of any fresh share issuance or borrowings in
excess of an amount equal to the stated capital of XG Mining; and (vi) having
regard to items (iv) and (v), these reports shall be submitted not less than 60
days in advance of the proposed alteration, transfer, issue or borrowing; (vii)
a copy of each of its annual financial reports including a balance sheet, profit
and loss account and notes thereto certified by a recognized accountant not
later than 180 days after the financial year end; (viii) such other reports and
information in connection with our operations to Government Authorities as be
reasonably required. We are entitled to surrender all or any part of our
interest in the lease area upon providing proper notice to the Government of
Ghana. We have the right to terminate our interest in each mining lease if the
subject mine can no longer be economically worked, by giving not less than nine
months' notice to the Government Authorities, without prejudice to any
obligation or liability incurred prior to such termination. The Government of
Ghana has the right to terminate our interest in the mining lease if (i) we fail
to make payments when due; (ii) contravene or fail to comply with terms and
conditions of mining lease (however, we have three months to remedy from the
notice of such event); (iii) become insolvent or commit an act of bankruptcy; or
(iv) submit false statements to the Government Authorities.
The mining leases further provide that XG Mining shall report forthwith
to the Minister, the Chief Inspector of Mines, the Director of Geological Survey
and the Chief Executive of the Minerals Commission in the event it discovers any
other minerals in the lease area, who in turn will provide XG Mining with the
first option to prospect further and to work the said minerals subject to
satisfactory arrangements between made between XG Mining and the relevant
government authorities.
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MINING, PROCESSING AND RECLAMATION AT OUR KWABENG AND PAMENG PROJECTS
INTRODUCTION TO PLACER GOLD MINING
Placer gold mining is the mining and processing of gold deposits that
are generally formed by the weathering of lode gold deposits and the
transportation of the resulting weathered materials over relatively short
geological time periods into a stream or river system where the gold is
generally sorted by the action of water to the bottom of the gravel and sand
beds of the river or stream system. During the course of this depositional and
sorting process the gravel and sand beds may be re-worked continuously by the
movement of the river or stream within its channel or valley. The gravel and
sand beds may also be covered over by other non-gold bearing materials such as
wind blown clays or silts and the action of floods causing further deposition of
materials. Normally, and as is the case at the Kwabeng and Pameng Projects, the
greatest concentration of gold particles are found in the gravels and sands at
the very bottom of the floodplain of the river or stream which lie directly on
top of the bed rock underlying the floodplain.
An exploration program was carried out by the previous owners to
identify the layers of gravels that contained gold particles by the systematic
digging of pits though the layers of material in the floodplains of the various
streams located on the concessions and processing the materials with simple
gravity gold recovery devices to determine the gold content of the gravel layers
and to estimate the volume of the gravels present on the properties.
These gold bearing gravel and sand deposits have traditionally been
mined through the centuries using hand digging and gold panning methods and
lately by the use of heavy earthmoving machinery such as bulldozers, hydraulic
excavators and haul trucks, where the materials that are barren of gold are
removed and the gold bearing gravels and sands are extracted and processed to
recover the gold particles. In some cases these deposits have also been mined
and processed with the use of bucket ladder dredges which are self contained
digging and processing barges that float on the rivers and scoop out the gravels
and sands to be processed on board the dredge and recover the gold. The gold
recovery process in each case is still the same, whereby having washed and
scrubbed the gravels and sands free of any sticky lumps of clay and silt and
having screened and sieved the gravels to a processable size fraction, the force
of gravity is used in devices that exploit the difference in the specific
gravity of the gold particles and the gravel and sand particles. No chemical
substances are used in the recovery of the gold from the ore since the particles
of gold in a normal placer deposit are of large enough size to be amenable to
gravity recovery alone, which is not the case for many lode or hard rock
deposits.
It is these gravel layers, which make up the historical proven reserves
located within the floodplains of the various streams on the Kwabeng and Pameng
concessions, that our Company plans to mine and process to extract the gold for
eventual sale and the generation of revenue and profit.
MINING PROGRAM
INTRODUCTION
Our Company's plan calls for the mining of the reserves at our Kwabeng
and Pameng Projects by the shallow open pit method with the use of heavy
earthmoving machinery which will include bulldozers, hydraulic excavators, wheel
loaders, haul trucks and motor graders. We have not yet determined whether the
mining fleet of equipment will be acquired, owned and operated by us or whether
we will make use of one of the many mining contractors in Ghana to carry out the
mining, ore hauling and reclamation activities required to extract the reserves
on a profitable basis.
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Procedural Steps Currently in Progress under the Bulk Test
- overburden is being removed, ore is being extracted and hauled to our Plant
- gold bearing gravel or ore is currently being loaded into the Plant and is
being scrubbed, screened and prepared for further processing
- gold concentrate is being recovered from our Plant and being transported to
the Gold Room located at our Field Camp for further concentration and cleaning
process whereby the gold concentrate will be cleaned of remaining ore particles
and can then be dried, weighed, recorded and stored in our Company's safe
Procedural Steps to be Completed in the Future
We plan to:
- fire the clean gold particles in our gold smelting furnace and the liquid gold
will be poured into moulds and allowed to cool to form dore gold bars with an
anticipated gold content of approximately 93%. We anticipate that this process
will be carried out under the supervision of a Ghana Customs Officer who will
record the details of the gold bar and seal the bars in containers and provide
the Customs documentation for the export of the gold bars to a specialized
refinery.
- obtain permission from the Water Commission to abstract water for our
processing on our Plant, when the need to do so is required.
- engage the services of the Government's Land Valuation Board to enumerate the
various farms and crops and assess the compensation to be paid to the farmers
who lose crops to any industrial enterprise. This enumeration process continues
throughout the life of the project as further blocks of reserves are prepared
for the mining phase.
- remove the vegetation from the ore reserve block.
- to construct haul roads within the floodplain and the terraces that flank the
floodplain.
- carry out the following reclamation program and re-contouring and re-planting
procedures:
The reclamation process is an integral part of the ore extraction and
haulage process, with almost all of the material extracted being re-emplaced in
the floodplain. Once the mining pit has advanced downstream a suitable distance
and the Plant has been floated in its trench closer to the active mining pit,
the areas of the floodplain that have been essentially left behind and refilled
with the overburden and tailing from the Plant, including the Plant trench, are
then re-contoured using a bulldozer and motor grader. A new stream channel is
re-emplaced in the mined out and re-contoured block and the stream re-introduced
into it. The topsoil that was previously stockpiled is then spread back over the
re-contoured area. Our Company then plans to assist the natural re-vegetation
process, by replanting indigenous tree species seedlings that we anticipate will
be grown in our Company's seedling nurseries. We intend that various nitrogen
fixing species of plants and rapid growing grasses will also be planted to
consolidate the newly spread topsoil. This process is our anticipated cost
reclamation plan ("RECLAMATION PLAN") It is usual for the EPA to require that a
company monitor the reclamation process for a period of three years upon the
conclusion of the reclamation.
The cost estimate for reclamation of disturbed areas depends basically
on one or more of the following factors:
o nature of deposit and degree of disturbance;
o handling of mined material; and
o end use of reclaimed land.
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The proposed reclamation estimates will be arrived at after further consultation
with the EPA. Negotiations are based on other projects, site visits to reclaimed
lands and review of related literature. The estimated cost for reclamation is
$1,365,440 for the various activities which include backfilling, leveling,
contouring and re-vegetation take into consideration:
o labour costs;
o cost of seedlings;
o equipment costs; and
o fuel costs.
We anticipate that we will finance the rehabilitation and closure of our mining
operation at our Kwabeng Project from revenues from this Project as well as from
cash flow. Our Company is required, for reclamation bonding, to provide an
annual detailed cash flow analysis to the EPA. The reclamation bond will be
negotiated with EPA based on the above and we anticipate that it will be posted
with an insurance company, bank or a bonding house once the amount has been
determined at which time XG Mining will then arrange the bond. Together with the
bond, the EPA requires our cash payment, based upon a negotiated percentage of
the bond, as soon as the reclamation costs have been agreed to. Sixty days
thereafter, posting of the bond must be in place.
We intend that the reclamation of the settling impoundments will also
take place as each of them become full of solids and past their useful life. The
impoundments are constructed with earth dams on the terraces immediately
adjacent to the floodplain, to form large ponds approximately 3 meters deep.
Once full of solids these de-commission impoundments will be allowed to dry and
we plan that each will be contoured over using a bulldozer and hydraulic
excavator. We then plan to replant with tree seedlings, grasses and nitrogen
fixing species of plants to assist the natural re-vegetation process.
- identify and engage purchasers for any gold that we intend to produce
- enter into a number of agreements for the sale of our gold including a
refining and sales agreement (with an internationally recognized gold refining
company), a foreign exchange retention agreement (with the Government of Ghana
and a trustee bank) and a stability agreement (with the Government of Ghana)
In accordance with the Mining Act: (a) the Government of Ghana shall be
entitled to a 10% interest in all the rights and obligations of XG Miming for
which no financial consideration is payable by the Government of Ghana and which
interest shall be maintained and assured to be always equal to 10% of the total
rights and obligations of XG Mining throughout the life of the project; (b) the
Government of Ghana reserves the right to acquire at any time, a further 20%
interest in XG Mining without prejudice to such further participation by the
Government of Ghana as may be agreed upon by XG Mining; (c) the 20% interest to
be acquired by the Government of Ghana shall be paid for in US dollars or other
currency to be specified by XG Mining at a price agreed upon by the parties or
at the fair market value thereof at the time of the exercise of the option, or
as may be determined by arbitration and in connection herewith the Government of
Ghana shall give XG Mining reasonable notice of its intention to exercise its
option to purchase any part or all of the said 20% interest; (d) the Government
of Ghana may nominate any agency or body as its agent to hold all or any part of
its interest in XG Mining; (e) the regulations and other documents of XG Mining
shall be amended to reflect any interest acquired or purchased by the Government
of Ghana in XG Mining. For so long as XG Mining follows the procedure for
marketing gold or other minerals produced by XG Mining as may be approved from
time to time by the Bank of Ghana acting on the advice of the Minerals
Commission, the Government of Ghana may undertake in the Stability Agreement
that it shall take no preemption action pursuant to its statutory pre-emption
rights under the Mining Act.
Prior to selling our gold, we plan to identify and engage purchasers for any
gold that we intend to produce.
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ANCILLARY OPERATIONS
KWABENG FIELD CAMP
Our Company already possesses a fully operational and well maintained
Field Camp comprised of office, administration accommodation and workshop
facilities located on the Kwabeng concession and is accessible by paved road
located approximately 2 hours drive from the capital city of Accra. Our Field
Camp is the base of operations for our Kwabeng and Pameng Projects. The Field
Camp is within cell phone coverage and can be supplied with electricity from the
national grid, which lines run along the road accessing the Field Camp. We
anticipate that all of our senior staff will be accommodated in the Field Camp
with the junior staff finding accommodation in the surrounding towns and
villages.
FUEL AND SPARE PARTS SUPPLY
We plan to deliver fuel from Accra by tanker and plan to discharge the
fuel into and store the fuel in the fuel tank facility located within the Field
Camp. We plan to purchase spare parts for all of our equipment either locally or
from suppliers overseas and store such parts in the secure spare parts warehouse
located at the Field Camp.
DEPARTMENTAL WORKSPACE
We anticipate, for the most part, hiring our Company's engineering
staff locally due to the abundance of highly skilled mining professionals in
Ghana. There is adequate office space at the Field Camp for our anticipated mine
planning and engineering, geology, surveying, environmental, processing,
equipment maintenance and other departments.
EQUIPMENT MAINTENANCE
Depending upon whether we elect to own and operate our own earthmoving
equipment fleet or not, then the maintenance of that fleet will be carried out
in the workshops located within the Field Camp. At the time when we make our
decision to own and operate an earth moving equipment fleet, we plan for some
re-tooling and re-equipping of our workshops to suit the equipment that we
anticipate being utilized for our mining operations. If our Company decides to
make use of a mining contractor to carry out the earth moving at our Kwabeng and
Pameng Projects, then we anticipate leasing the workshops to the contractor as
part of the contract.
Capital Expenditures
To commence production at the Kwabeng and Pameng Projects, with a view
to generating revenues, we anticipate capital requirements of approximately a
maximum of $6,000,000 as set out below:
Mining Equipment (1) ............. $ 3,025,000
Service Equipment ................ $ 900,000
Processing Plant ................. $ 900,000
Site Administration .............. $ 100,000
Environmental and Permitting ..... $ 75,000
Working Capital .................. $ 1,000,000
-----------
TOTAL CAPITAL EXPENDITURES ....... $ 6,000,000
===========
(1) This capital cost contemplates the purchase of mining equipment, which
includes bull dozers, excavators, dump trucks, a front end loader and
motor grader, and will be reduced by $3,000,000 in the event that we
decide to lease such equipment through third parties.
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XG Mining has commenced rehabilitating the Field Camp which includes
installation of a communication system for Internet access, electronic mail,
telephone and facsimile service and minor construction repairs.
We anticipate that our full scale mining operation will commence at our
Kwabeng Project in the Spring of 2007.
THE BANSO AND MUOSO PROJECT
Our Banso and Muoso Project consists of two concessions totaling 107.32
sq km. We hold one prospecting licence, as more particularly described
hereunder, for the Banso and Muoso concessions which is situated in the Eastern
Region of Ghana approximately 80 kilometers north of Accra. These concessions
lie in the Kibi-Winneba Gold Belt on the western flanks of the prominent Atewa
Range, which is underlain by Birimian greenstone, phyllites, meta-tuffs,
epi-diorite, meta-greywacke and chert. The valleys, over which the concessions
are located, are underlain by thick sequences of Birimian metasediments. The
north-western end of the Atewa Range is the type-locality for the Birimian
metasediments and metavolcanics.
Access to this Project is noted below under the sections entitled
"Banso Concession" and "Muoso Concession".
This area is one of the oldest placer gold mining areas of Ghana,
dating back many centuries. Historical exploration and mining has mainly focused
on placer gold. Prior to our acquisition of the Banso and Muoso concessions, to
the best of our knowledge and based on mining records in Ghana, there has never
been a detailed documented bedrock exploration program conducted on these
concessions.
Our Banso and Muoso Project represents a "grassroots" or "greenfields"
mineral exploration project. This Project is at an early stage of evaluation and
no mineralized material or reserve estimates have been made. The present
exploration activities on these concessions, including grid establishment, soil
sampling, prospecting/geological mapping, pitting/trenching and geophysics, are
aimed at identifying lode gold (hardrock) mineral occurrences to be further
evaluation through drilling. We have completed preliminary lode gold exploration
programs at our Banso and Muoso Project and are awaiting results.
BANSO AND MUOSO PROSPECTING LICENCE
Our wholly-owned subsidiary, XGEL entered into a prospecting licence
with The Government of the Republic of Ghana (the "GOVERNMENT OF GHANA") on
September 24, 2001 covering a licensed area of 107.32 sq km (the " BANSO AND
MUOSO LICENSED AREA"). This prospecting licence has a current term expiring on
March 1, 2007 at which time, in order to obtain a further renewal of the
licence, we plan to submit (i) a comprehensive terminal report including logs of
pits and assay results; (ii) a detailed financial report; (iii) a site plan
indicating the areas to be retained and those to be shed off; (iv) evidence of
annual ground rent payments; and (v) an environmental permit from the EPA. We
have been granted the right and licence by the Government of Ghana to conduct
geological and geophysical investigations in the licensed area to determine
adequate quantity of geologically proven and mineable reserve of gold and
diamonds (directly or through agents, contractors or sub-contractors). The terms
and conditions of the prospecting licence include, among other things, our
requirement to (i) conduct a preliminary pitting program (Phase I); (ii) conduct
a reserve definition program (Phase II); and (iii) prepare an
engineering/feasibility report (Phase III); (iv) provide an annual report in
prescribed form within 60 days after each calendar year to various mining
regulatory bodies and government authorities (collectively, the "AUTHORITIES").
We have the right to (i) assign or mortgage our interest in the prospecting
licence, subject to obtaining the consent of the Government of Ghana who may
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impose certain conditions in connection therewith; (ii) surrender our interest
in the prospecting licence; and (iii) renew the term of the prospecting licence
for a period of two years or such other renewal period may be granted in
accordance withapplicable mining laws of Ghana. The Government of Ghana has the
right to terminate the prospecting licence in the event we (i) fail to make
payments when due; (ii) contravene or fail to comply with terms and conditions
of the prospecting licence; (iii) become insolvent or commit an act of
bankruptcy; or (iv) submit false statements to the Government of Ghana. In any
of the foregoing events, we have 21 days in which to remedy any of these
occurrences. If upon expiration of prospecting licence, we have fulfilled our
obligations and have established to the Government of Ghana that development of
a mine from ore reserves established within the licensed area is economical and
financially feasible, the Government of Ghana shall grant us with first option
to (i) acquire a lease for purposes of mining in the licensed area of the Banso
and Muoso Project; and (ii) participate in mining project in licensed area,
subject to negotiation with the Government of Ghana of satisfactory terms for
such licence and participation.
REGIONAL EXPLORATION PROGRAM
On July 4, 2004, we commenced the first exploration stage on these
concessions with fieldwork ending on August 23, 2004. We contracted with CME to
conduct the exploration program. Fieldwork included stream sediment sampling,
line cutting, GPS surveying of the grid and soil sampling. Acquisition and
interpretation of airborne geophysical data and satellite imagery was also
undertaken.
RESULTS
Results from the first phase of exploration were very encouraging with
evidence of a bedrock gold source within both the Banso and Muoso concessions.
Silt sampling indicated significant gold values, with soil sampling showing
several significant anomalous zones. The anomalous zones appear to correlate
with an interpreted contact between the Birimian volcanoclastics and
metasediments.
FURTHER EXPLORATION WORK
On April 27, 2005, we further contracted with CME to conduct a second
stage exploration program at our Banso and Muoso Project located at the Banso
and Muoso concessions. The work program included detailed grid establishment and
soil sampling, ground magnetometer surveying, updating the geodatabase and
recommendations for future work. The purpose of this program was to determine
areas of gold mineralization at the Banso and Muoso concessions that can be
followed up with induced polarization surveys, trenching and diamond drilling.
RESULTS
Grid Establishment
Grid placement was based on the results from the 2004 regional work
program. Four grids were established in the areas of primary interest, one on
the Muoso concession and three on the Banso concession. The grids on the latter
concession are referred to as Area 1, Area 2 and Area 3.
Soil Sampling
Soil sampling was undertaken along all grid lines established during
this work program. From the 6,961 established stations, 177 locations were not
sampled due to possible contamination from villages, streams and/or swamps.
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A total of 6,516 samples were submitted for gold and 6,066 samples for
arsenic analyses. A breakdown of the gold results per property area includes:
o Muoso Grid ......................... 3,318
o Banso Area 1 Grid .................. 1,560
o Banso Area 2 Grid .................. 696
o Banso Area 3 Grid .................. 942
Results
A total of 17 samples reported gold values over 1,000 ppb Au, ranging
from 1,066 to 171,000 ppb Au, including 4 samples over 10,000 ppb Au.
ACCESS AND LOACATION: MUOSO CONCESSION
Access to the Muoso Concession is gained by driving northwest
approximately 80 km from Accra on the paved Accra-Kumasi Trunk Road. This
highway passes through the easternmost portion of the Muoso concession and
shares a common boundary with the Kwabeng Concession. From the town of Osino,
one would drive northwest approximately 5 km to the town of Anyinam, from which
an all weather direct road heads south through the centre of the Muoso
Concession and onto the Banso Concession, approximately 15 km south of the
Accra-Kumasi Trunk Road. The town of Muoso is approximately 10 km from Anyinam.
A number of dirt roads, trails and footpaths offer additional access to this
concession. Our Project is located approximately 10 km south-southeast from our
Field Camp.
At the southwest boundary of the concession several anomalies appear,
the largest of which measures 350 meters in length and up to 300 meters in
width. Values up to 17,740 ppb Au occur on L71+00E at station 139+50N.
Immediately below this is an easterly trending anomaly having a length of about
300 meters and a width of about 75 meters with values up to 19,600 ppb Au on
L71+00E at station 136+75N. Further south are two smaller but significant
anomalies with maximum gold-in-soil values of 1,400 and 154 ppb Au.
ACCESS AND LOCATION: BANSO CONCESSION
Access to the Banso Concession is gained by driving northwest
approximately 136 km from Accra on the paved Accra-Kumasi Trunk Road. Our
Project is located approximately 11 km south-southwest from our Field Camp.
INTERPRETATION AND CONCLUSIONS
Soil sample geochemistry has been completed over selected portions of
the anomalous zones indicated by the 2004 regional sampling program. Work during
the 2005 program suggests the presence of a bedrock source within both the Muoso
and Banso concessions.
At Muoso the most significant anomalies occur along the inferred
location of the northeast-southwest trending dolerite dyke. Secondary anomalies
occur to the east of this dyke and are oriented sub-parallel to the strike of
the dyke. These may represent possible structural events (shears/faults) lying
along geological contacts (planes of weakness). In the southwest portion of the
grid, a possible north-south to northwest-southeast trending gold anomaly is
coincident with inferred faulting in similar directions. In the southwestern
area of the Muoso grid, two of the arsenic anomalies flank the sides of the
north-south trending gold anomaly.
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At Banso, each of the three grids outlined two gold anomalies. The Area
I anomalies trend northwest-southeast and occur at the junction of cross cutting
structures. Within Area 2 and 3, linear gold anomalies trend
northeast-southwest, parallel to the regional geological trend. The western most
gold anomaly in Area 3 flanks the margins of a strong magnetic high (possible
intrusive). Arsenic anomalies at Banso typically occur on hill/ridge tops with
the gold anomalies flanking the sides of the arsenic anomalies.
Within Area 3, gold anomalies also appear to flank the edges of a
magnetic high anomaly, possibly an intrusive body.
The soil sampling program at Banso was successful in locating a number
of gold-in-soil anomalies, the most significant of these is located about 400
meters NE of Abesim Township (i.e. Area 3). This anomalous zone has an average
width of about 50 meters and a length of about 500 meters and follows the
northeasterly regional geological trend. There are a few continuous gold-in-soil
values outside this main anomalous zone including 414 ppb Au and 426 ppb Au
between stations 113+00E and 113+25E on L16+00N. East of these values along the
same line are two spot anomalies; 2,492 ppb Au (116+75E) and 354 ppb Au
(117+50E).
RECOMMENDATIONS
The following stage exploration program is recommended and consists of:
o An estimated 200 kilometers of grid to be cut at Muoso and Banso.
This will include the extension of selected existing lines and the
establishment of new ones. In addition, soil sampling, geochemical
analysis, GPS and ground magnetometer surveys will be conducted.
o A grid will be established within the eastern areas of the Muoso
concession, and soil samples collected, to follow up on anomalous
silt samples taken in the previous sample program.
o At Banso a grid will be cut within the northern portion to cover
those areas that returned anomalous silt samples. Additional soil
sampling is planned to confirm and further define the anomalous
area.
o Auger sampling to depths of 2.5 meters will be conducted on both
concessions testing sites that returned greater than 100 ppb gold in
soils.
o Trenches are recommended at selected sites at both concessions to
investigate gold-in-soil anomalies and the relationship the
anomalies have to geology/structure. An estimated 300 meters of
trenching, to 3.0 meter depth, is recommended.
o Approximately 50 line kilometers of surface IP surveying may be
carried out on priority areas as identified in previous
sampling/work programs.
We entered into a Phase II exploration contract in September 2006 with
CME incorporating some of the above recommendations, including additional grid
establishment, soil geochemical surveying, and prospecting on the Muoso
concession; and a pitting/trenching program designed to test the geochemical
signature at depth of the three primary gold-in-soil anomalies detected on the
Banso concession by the Phase I exploration program (i.e. Banso Area 1, 2, 3).
The work program for this Project was completed in December 2006 at a cost of
approximately $200,000. The results of this program are not expected until
February 2007.
No ore reserves have been identified on the Banso and Muoso Project.
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THE APAPAM PROJECT
ACCESS AND LOCATION
Our Apapam Project concession lies within the Kibi-Winneba area in the
Eastern Region of Ghana and is located on the eastern flank of the Atewa Range
along the headwaters of the Birim River in the immediate vicinity of the
district capital of Kibi, approximately 75 km NNW of the nation's capital city
of Accra. Access to our Apapam Project is by driving northwest from Accra on the
paved Accra-Kumasi Trunk Road which is the main national highway for
approximately 90 km until the town of Kibi, marked by a road sign, is reached.
One would make a left hand turn at the Kibi sign and drive southwest for
approximately 5 km to arrive at our Apapam concession. A tarred road emanating
from the Accra-Kumasi Trunk Road approximately 15 km northeast of Kibi dissects
the north-central and south-eastern portions of our concession, while the tarred
road servicing the town of Apapam provides access to the concession's
south-western extremity. Our Apapam Project is located approximately 20 km
south-southeast from our Field Camp.
The Kibi-Winneba areais characterized by a narrow sequence of Birimian
metavolcanics underlying most of the Atewa Range, which is covered by an
extensive laterite/bauxite capping, and surrounded by a thick package of
Birimian metasediments dominating the flanks and the lower lying areas. Our
Apapam Project covers the Birimian volcanic-sediment contact which we believe
represents a highly favorable environment for the hosting of lode gold deposits
throughout Ghana.
Very little systematic exploration work for bedrock gold deposits has
been conducted in the Kibi area since the 1930s. Recent exploration activity in
the district appears to be limited to an airborne geophysical survey flown by
Ashanti Goldfields and a regional lode-gold occurrence compilation undertaken by
Sikaman Gold Resources - BHP Minerals in the mid-1990s.
PHASE I EXPLORATION PROGRAM
A first phase exploration program was implemented by geological consultant CME
on the Apapam concession from August 12 to September 23, 2006. The Phase I
exploration program undertaken in 2006 consisted of regional stream sediment
sampling, followed by gridded soil sampling, rock sampling and detailed sampling
of several adits located 400 metres northwest of Kibi.
PROSPECTING LICENCE - APAPAM PROJECT
XG Mining entered into a prospecting licence with respect to our Apapam
Project with The Government of Ghana on March 29, 2004 covering a licensed area
of 33.65 sq km (the "APAPAM LICENSED AREA")
This prospecting licence had an initial two year term with renewal
provisions. The current term has been renewed and expires on April 28, 2007 at
which time we will be required to submit (i) a comprehensive terminal report
including logs of pits and assay results; (ii) a detailed financial report;
(iii) a site plan indicating the areas to be retained and those to be shed off;
(iv) evidence of annual ground rent payments; and (v) an environmental permit
from the EPA. We have been granted the right and licence by the Government of
Ghana to conduct geological and geophysical investigations in the licensed area
to determine adequate quantity of geologically proven and mineable reserve of
gold and diamonds (directly or through agents, contractors or sub-contractors).
The future planned work program at our Apapam Project includes, among other
things, (i) conducting pitting/trenching programs; (ii) additional detailed soil
sampling; (iii) bedrock mapping and sampling; (iv) possible IP surveys; (v)
drilling to be contingent upon exploration results. We are required to provide
an annual report in prescribed form within 60 days after each calendar year to
various mining regulatory bodies and government authorities (collectively, the
"AUTHORITIES"). We have the right to (i) assign or mortgage our interest in the
prospecting licence, subject to obtaining the consent of the Government of Ghana
who may impose certain conditions in connection therewith; (ii) surrender our
interest in the prospecting licence; and (iii) renew the term of the prospecting
licence for a period of two years or such other renewal period may be granted in
accordance with the applicable mining laws of Ghana. The Government of Ghana has
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the right to terminate the prospecting licence in the event we (i) fail to make
payments when due; (ii) contravene or fail to comply with terms and conditions
of prospecting licence; (iii) become insolvent or commit an act of bankruptcy;
or (iv) submit false statements to the Government of Ghana. In any of the
foregoing events, we have 21 days in which to remedy any of these occurrences.
If upon expiration of prospecting licence, we have fulfilled our obligations and
have established to the Government of Ghana that development of a mine from ore
reserves established within the licensed area is economical and financially
feasible, the Government of Ghana shall grant us with first option to (i)
acquire a lease for purposes of mining in the licensed area of our Apapam
Project; and (ii) participate in mining project in licensed area, subject to
negotiation with the Government of Ghana of satisfactory terms for such mining
lease and participation.
THE EDUM BANSO PROJECT
ACCESS AND LOCATION
Our Edum Banso Project lies within the south Ashanti gold belt in the
Western Region of Ghana and is located approximately 235 kilometers west of
Accra and 15 kilometers northwest of Takoradi, the regional capital.
Access to the Project is by asphalt road from Accra to Takoradi and by
gravel road from Takoradi to Edum Banso through the town of Apowa. Internal
access within the concession area is quite poor, however there are many
foothpaths that interconnect the scattered settlements within this concession.
Our Edum Banso Project is located approximately 200 km southwest from our Field
Camp.
OPTION AGREEMENT FOR PROSPECTING LICENCE
Our wholly-owned subsidiary, XGEL entered into an option agreement
dated October 17, 2005 (the "Adom Option Agreement") with Adom Mining Ltd.
("ADOM"), a 100% wholly registered Ghanaian company, who is the registered
proprietor of a prospecting licence which Adom entered into with The Government
of Ghana on May 8, 1991, covering a licensed area of 20.60 sq km (the "EDUM
BANSO LICENSED AREA") . This prospecting licence has a current term expiring on
July 21, 2008.
Previously, Newmont Ghana Limited ("NEWMONT") had entered into an
option agreement with Adom in connection with the Edum Banso Project, however
abandoned their interest.
Under the terms and conditions of the prospecting licence, Adom has the
right to prospect for and prove gold under or in the licensed area including the
right to conduct such geological and geophysical investigations in the licensed
area in order to determine an adequate quantity of geologically proven and
mineable reserve of gold (directly or through agents, contractors or
sub-contractors). Under the prospecting licence, the holder has the right to (i)
assign or mortgage its interest in the prospecting licence, subject to obtaining
the consent of the Government of Ghana who may impose certain conditions in
connection therewith; (ii) surrender its interest in the prospecting licence;
and (iii) renew the term of the prospecting licence for a period of two years or
such other renewal period may be granted in accordance with applicable mining
laws of Ghana.
The Government of Ghana has the right to terminate the prospecting
licence in the event the holder of the prospecting licence (i) fails to make
payments when due; (ii) contravenes or fails to comply with terms and conditions
of prospecting licence; (iii) becomes insolvent or commits an act of bankruptcy;
or (iv) submits false statements to the Government of Ghana. In any of the
foregoing events, the holder will have 21 days in which to remedy any of these
occurrences. If upon expiration of prospecting licence, the holder has fulfilled
its obligations and has established to the Government of Ghana that development
of a mine from ore and reserves established within the licensed area is
economical and financially feasible, the Government of Ghana shall grant the
holder with first option to (i) acquire a licence for purposes of mining gold in
the licensed area of the Edum Banso concession; and (ii) participate in mining
project in licensed area, subject to negotiation with the Government of Ghana of
satisfactory terms for such licence and participation.
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At the time of execution of the Adom Option Agreement, we paid Adom
$5,000 as consideration for entering into the agreement with us. We are required
to pay Adom additional payments of $5,000 on the anniversary date of the Adom
Option Agreement for each year that we hold an interest in such agreement. The
term of the Adom Option Agreement is for five years. There are no other
termination rights available to Adom.
We are required to make an additional payment of $200,000 to Adom at
the time of commencement of the production of gold in or on the Edum Banso
Project; provided, however in the event less than two million ounces of proven
and probable reserves are discovered in or on the Edum Banso Project, this
payment shall be reduced to $100,000. Under the terms and conditions of the Adom
Option Agreement, Adom has granted XGEL the sole and exclusive right and option
to acquire all of its right, title and interest in the prospecting licence,
which option may be exercised by XGEL at any time during the term. Adom has
further granted XGEL the exclusive right of free and unrestricted access to the
Edum Banso Project to explore, develop and, provided XGEL has exercised the
option, to mine, extract, remove and sell any and all ores, minerals,
concentrates or other products from the Edum Banso Project. Upon XGEL's written
election to exercise the option, Adom shall forthwith transfer the prospecting
licence to XGEL, subject only to a reserved royalty of 2% of the net smelter
returns ("NSR") from all ores, minerals or other products mined and removed from
the Edum Banso Project and sold by XGEL. In the event less than two million
ounces of proven and probable reserves are discovered in or on the Adom Project,
the reserved royalty shall be 1% of the NSR. Adom has granted XGEL the exclusive
right and option, exercisable by XGEL at any time to purchase the entirety of
the reserved royalty for the sum of $2,000,000. No payment of the actual NSR
shall be credited toward the reserved royalty purchase price. In the event less
than two million ounces of proven and probable reserves are discovered in or on
the Edum Banso Project, the reserved royalty purchase price shall be $1,000,000.
Pursuant to the terms of an amending agreement entered into between the parties
on October 19, 2006, XGEL has the right, without the prior consent of Adom, to
assign or transfer its rights under the Option Agreement and the option to any
affiliate or third party or to enter into a joint venture in connection
therewith provided that any assignment, transfer or joint venture by XGEL shall
be subject to agreement by the assignee, transferee or joint venture partner to
be bound by the terms of this agreement.
RESERVES
There are no reserves reported on this Project.
GEOLOGY
The Edum Banso concession is underlain by basic to intermediate
metavolcanic rocks, volcanoclastic rocks, greywackes and phyllites of the Upper
Birimian Formation. These rocks are intruded by Dixcove suite granites in the
north, mainly composed of hornblende granites, granodiorites, and gabbros and
diorites in the south. Similar intrusive granites in Ghana have been proven to
host disseminated sulphide hosted gold mineralization. Two major thrust faults
interpreted from aeromagnetic data run north by northeast through the project
area.
HISTORIC WORK
The only gold production on the concession was from local miners
working the auriferous gravels and quartz veins as reported by J.W. Lunn in the
1930s. Amercosa (formerly AngloAmerican) reportedly worked on the project in the
late 1990's, however the results from this work are not published. St. Jude
Resources, a Canadian public mining company, conducted geophysical surveys
including magnetic and induced polarization surveys. The prospective structures
identified in these surveys were followed up by geochemical surveys which
included soil, trench and pit sampling.
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In 2003, Newmont conducted stream sediment surveying throughout the
entire concession area. Results of the survey delineated one main anomalous gold
zone that appears to coincide with a possible shear zone as inferred from the
geophysics.
In 2004, a soil sampling program was completed to follow up on the
previously identified stream gold anomaly. 1,109 soil samples were collected
along a north-south exploration grid. Several samples returned anomalous assays
up to 600 ppb gold.
TARGETS
Stream sediment sampling by Newmont defined a broad anomalous gold zone
approximately 7 km long by 1.5 km wide, roughly conforming to the regional
geological trend. Follow-up soil and rock sampling further constrained this
broadly anomalous area into two distinctive anomalies, while geophysical
interpretation suggests they are coincident with the surface expression of two
major North-South oriented thrust faults. The entire structure remains
prospective but these two anomalies represent immediate targets for follow-up
exploration.
NO CURRENT EXPLORATION WORK; RECOMMENDED WORK PROGRAM
A minimum work program for this Project would include infill soil
sampling. Control would be provided by an exploration grid cut at 200 m line
spacing and 50 m station intervals. 50 line-km of grid would be cut in order to
cover the targets. It is also recommended that additional detailed geological
and regolith mapping plus prospecting and rock sampling be carried out.
Contingent upon the results of the programs, a scout reverse-circulation
drilling program (approximately 2,500 meters) may be required to test the best
targets.
The total cost for such a program would be approximately $155,000. To
date, the Company has made no decision on whether it will proceed with this
work.
GHANAIAN LAW
GENERAL
Ghana is situated on the West Coast of Africa, approximately 600
kilometers north of the equator on the Gulf of Guinea. Accra, the capital city
of Ghana, is located on the Prime Meridian. After a period as a British colony,
Ghana achieved independence in 1957 and it is now a republic with a
democratically elected government and a national constitution promulgated in
1992 (the "CONSTITUTION"). Ghana has a population of approximately 20 million
people. English is the official and commercial language. The total land area of
the country is approximately 238,000 sq km and the topography is relatively
flat. Ghana has a tropical climate with two rainy seasons and two dry seasons
each year.
The legal and regulatory framework for mining in Ghana is set out in
the Constitution and the Minerals and Mining Act, 2006 (Act 703) (the "MINING
ACT"). Within this legal framework, the Ghanaian State is the owner of all
minerals occurring in their natural state within Ghana's land and sea territory,
including its exclusive economic zones. All minerals in Ghana are vested in the
President, on behalf of and in trust for the people of Ghana. Thus, regardless
of who owns the land upon or under which the mineral is situated, the exercise
of any mineral right requires, by law, a licence to be granted by the Minister
of Lands, Forestry and Mines (the "SECTOR MINISTER") who acts as an agent of the
State for the exercise of powers relating to minerals. The Sector Minister is
also authorized to exercise, within defined limits, powers relating to transfer,
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amendment, renewal, cancellation and surrender of mineral rights. The powers
conferred upon the Sector Minister must be exercised contingent upon the advice
of the Minerals Commission, which has the authority under the Constitution to
regulate and manage the utilization of the mineral resources and co-ordinate
policies in relation to minerals. The law specifies the forms of the mineral
rights that the Sector Minister is empowered to grant, the duration of the
grant, the size of the concession, and eligibility criteria for the grantee, as
well as the procedure for the application for the mineral rights. The law also
sets out in broad terms the rights and obligations of the holder of the mineral
right and the terms and conditions upon which each mineral right grant should be
made. A mineral right grant is not transferable or tradable in any form except
with the prior written consent of the Sector Minister.
GHANAIAN OWNERSHIP AND SPECIAL RIGHTS
Rights to explore and develop a mine are administered through the
Minerals Commission, a governmental organization designed to promote and control
the development of Ghana's mineral wealth. Generally, a body corporate may apply
to the Minerals Commission on prescribed forms for a renewable exclusive
reconnaissance licence for a specifice mineral for one year or an exploration
licence granting exclusive rights to explore for a particular mineral in a
selected area for a period of up to three years. To be eligible for the grant of
a licence, the applicant must show that it has the requisite financial and
technical capability to carry out the mineral operations in respect of which the
licence is applied for in accordance with a costed work programme. The applicant
must also show how the proposed mineral operations would contribute to the
employment and training of Ghanaians in the mining industry. When exploration
has successfully delineated a mineable mineral reserve, an application is made
to the Minerals Commission for conversion to a mining lease, granting a company
the right to produce a specific product from the concession area for a period of
normally 30 years. Production must begin within two years of the date of
granting a mining lease.
Under the mining law, the Government of Ghana holds a mandatory 10%
carried interest in all mining leases. The Government may also acquire such
further interest in the mining operations as may be agreed with the holder of
the mining lease. The Government of Ghana currently has a 10% carried interest
in XG Mining and may acquire such interest as may be mutually agreed with the
holder. The carried interest that the Government of Ghana holds in XG Mining
entitles it to a pro rata share of future dividends (none have been declared to
date), if any, from XG Mining once all capital is repaid, and the Government of
Ghana has no obligation to contribute development or operating expenses in
respect of the carried interest. If the Government of Ghana wishes to exercise
its option to acquire an additional interest, it must first give reasonable
notice and pay a mutually agreed price. If there is no agreement, the purchase
price would be the fair market value of such interest at such time as may be
determined by arbitration conducted in accordance with the Mining Act.
The Government of Ghana could also acquire further interest in XG
Mining on terms mutually acceptable to the Government and XG Mining. To date,
the Government has indicated no intention to obtain additional ownership in any
of our Projects.
The Government of Ghana is entitled to acquire a special or golden
share in any mining or exploration Company, including XG Mining or XGEL, at any
time for no consideration or such consideration as the Government of Ghana and
XG Mining or XGEL might agree. The special share would constitute a separate
class of shares with such rights as the Government of Ghana and XG Mining or
XGEL might agree. In the absence of such agreement, the special share would have
the following rights:
o the special share would carry no voting rights, but the holder would
be entitled to receive notice of and attend and speak at any general
meeting of the members or any separate meeting of the holders of any
class of shares;
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o the special share could only be issued to, held by, or transferred
to the Government or a person acting on behalf of the Government;
o the written consent of the holder of the special share would be
required for all amendments to the organizational documents of the
company, the voluntary winding-up or liquidation of the company or
the disposal of any mining lease or the whole or any material part
of the assets of the company; and
o the holder of the special share would be entitled to the payment of
a nominal sum of 1,000 Ghanaian Cedis in a winding-up or liquidation
of the company in priority to any payment to other members and could
require the company to redeem the special share at any time for a
nominal sum of 1,000 Cedis.
XG Mining and XGEL have not issued nor to date been requested to issue any such
special share to the Government of Ghana.
The Government of Ghana has a preemptive right to purchase all gold and
other minerals produced by any mining company including XG Mining and XGEL. The
purchase price would be such price as the Government of Ghana and the mining
company might agree on, or the price established by any gold hedging arrangement
between the mining company and any third party approved by the Government, or
the publicly quoted market price prevailing for the minerals or products as
delivered at the mine or plant where the right of preemption was exercised. The
Government of Ghana may enter into agreement with XG Mining to take no
preemptive action pursuant to its right to purchase such gold or other minerals
so long as the mining company sells gold in accordance with certain procedures
for selling gold approved by the Bank of Ghana and set out in a Foreign Exchange
Retention Account Agreement (the "FOREX AGREEMENT").
GHANAIAN ROYALTY RIGHTS
Under the laws of Ghana, a holder of a mining lease is required to pay
quarterly a royalty of not less than 3% per annum and not more than 6% per annum
of the total revenues earned from the lease area. The Government of Ghana
determines the royalty percentage each year based on the ratio that the
operating margin bears to the value of gold produced from a mining lease in that
year. Based on the applicable Mineral Royalty Regulations of 1987 as amended by
the Mining Act, the royalty is 3% when the operating ratio is 30% or less, and
the royalty increases 0.225% for each 1% increase in operating ratio until the
royalty reaches a maximum of 6%.
GOVERNMENT REGULATION
Except as referred to elsewhere in this Prospectus, there are no other
U.S., Ghanaian, Canadian or other government regulations that are material to
our Company.
EMPLOYEES
Our Company has no salaried employees. Our Chairman, Chief Executive
Officer ("CEO") and Chief Financial Officer ("CFO"), devotes approximately 90%
of his time in consulting services to our Company. Our Vice-President,
Exploration devotes approximately 50% of his time in consulting services to our
Company. We further engage the consulting services of our Vice-President, Ghana
Operations for our Ghanaian subsidiaries who devotes approximately 60% of his
time to our Company. We also engage our Secretary and Treasurer with respect to
corporate, accounting and administrative services. She devotes approximately 90%
of her time in consulting services to our Company.
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REAL PROPERTY AND FACILITIES
We do not own any real property. All of our mining activities are
currently conducted at project sites located in Ghana. Mining leases or
prospecting licences to which we are a party, granting us the right to operate
at our Kwabeng and Pameng, Apapam, Banso and Muoso and Edum Banso Projects, are
described elsewhere in this Prospectus. Our administrative activities are
currently conducted from our corporate head office, which we lease on a month to
month basis, located at 6 Kersdale Avenue, Toronto, Ontario, Canada, MCM 1C8,
which space is provided by our Treasurer and director. We pay rent of CAD$500
(US$443) per month. Our technical activities are currently conducted from our
technical office located at House No. 15, Ade-Coker Road, East Legon, Accra,
Ghana which we lease on an annual basis and pay rent of $1,000 per month. We
also maintain a technical office located at 430 Westmount Avenue, Unit F,
Sudbury, Ontario, Canada, P3A 5Z8, where our VPE and his staff conduct business
and pay rent of CAD$500 (US$443) per month.
LEGAL PROCEEDINGS
We are not a party to any pending legal proceeding, nor are we aware of
any legal proceedings being contemplated against us by any governmental
authority. We are not aware of any legal proceeding in which any of our
officers, directors, affiliates or security holders is a party adverse to us or
in which any of them have a material interest adverse to us.
A former consultant of our Ghanaian subsidiaries, XG Mining and XGEL,
has brought an action for damages in the High Court of Ghana against our two
subsidiaries with respect to an alleged wrongful termination of appointment. He
is claiming for an amount of $172,000. We have been advised by our Ghanaian
counsel that the court action is both frivolous and vexatious and has no merit.
We are vigorously defending against the claims and have filed statements of
defense on behalf of our two subsidiaries. The trial of this suit commenced on
November 2, 2006 and has since been delayed as plaintiff is currently seeking
replacement counsel as his former counsel withdrew his representation of the
Plaintiff on November 17, 2006 It is premature to comment on the outcome of the
trial or whether we will be able to reach an amicable settlement with the
plaintiff during the trial process.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table includes the names, positions held and ages of our
executive officers and directors.
NAME AGE POSITION
William Edward (Ted) McKechnie ... 59 Chairman, Chief Executive Officer,
Chief Financial Officer and Director
Rebecca Kiomi Mori ............... 56 Secretary and Treasurer and Director
James Werth Longshore ............ 39 Director
Yves Pierre Clement .............. 42 Vice-President, Exploration
Alhaji Nantogma Abudulai ......... 63 Vice-President, Ghana Operations
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WILLIAM EDWARD (TED) MCKECHNIE, B.A.
Chairman, Chief Executive Officer, Chief Financial Officer and Director
William Edward (Ted) McKechnie was appointed as Chairman and Chief
Executive Officer of our Company in August 2005 following the resignation of
Paul Zyla, the former Chief Executive Officer of our Company. Mr. McKechnie was
also appointed as Chief Financial Officer of our Company in November 2005 and
has served as a director since November 21, 2003. Mr. McKechnie was President
and Chief Executive Officer of William Davies Consulting, Inc. from February
1998 to May 2006, a management consulting firm of which McKechnie was president
and owner. In addition, for the prior years, Mr. McKechnie has held senior
management positions with a number of Canadian and multinational packaged foods
companies including President and Chief Executive Officer of: Centralized Buying
Group Inc. from April 2002 to May 2004, a buying group importing mass
merchandising items into North America; President, Maple Leaf Grocery, a
division of Maple Leaf Foods Inc., from 1991 to 1994; President, Chief Operating
Officer and a director of Humpty Dumpty Snack Foods Ltd., a division of Small
Fry Snack Foods Ltd., from 1994 to 1998; Executive Vice-President - Marketing of
Hostess Frito Lay, a division of Kraft General Foods/Pepsi Co. from 1988 to 1991
and Vice-President - Sales and Marketing of Hostess, a division of General Foods
from 1985 to 1988. Mr. McKechnie was formerly the President, Chief Operating
Officer and a director of Wynne International Inc. (September 2001 to April
2004), a North American distributor of fitness equipment; and was the former
President and a director of Dover Petroleum Corporation (October 2001 to
February 2003).
Mr. McKechnie devotes approximately 90% of his time in consulting
services to our Company. He provides 10% of his time to unrelated companies. Mr.
McKechnie has entered into a management consulting agreement through a
corporation of which he is a director as well as a non-competition and
non-disclosure agreement with our Company.
REBECCA KIOMI MORI
Secretary and Treasurer and Director
Ms. Mori was appointed Secretary and Treasurer of our Company in
September 2005 and was further appointed as a director of our Company in April
2006. Ms. Mori has approximately 25 years of legal experience. During the last
13 years, she has worked exclusively with both public and private mining
companies and also at a Toronto, Ontario, Canada corporate securities law firm.
Prior to joining our Company as Secretary and Tresurer, Ms. Mori was (i) the
Corporate Securities Legal Assistant for Roxy Resources Inc., a private Canadian
mining company from December 2003 to May 2005, (ii) a consultant to our company
from June 2005 to August 2005 for purposes of becoming Secretary and Treasurer,
and (iv) responsible for the corporate operations including the maintenance of
corporate records and regulatory reporting requirements for Valucap Investments
Inc. from July 1997 to June 2004 and Romarco Minerals Inc. from May 1997 to
March 2003.. Prior thereto, she was a corporate securities legal assistant
and/or law clerk at numerous Toronto, Canada law firms. Ms. Mori has diverse
legal experience with respect to securities, corporate, accounting, finance and
litigation matters and is knowledgeable and experienced in Canadian and U.S.
securities matters.
Ms. Mori devotes approximately 90% of her time in consulting services
to our Company. She provides 10% of her time to unrelated companies. She has
entered into a management consulting agreement as well as a non-competition and
non-disclosure agreement with our Company.
JAMES WERTH LONGSHORE, BA, Economics
Director
Mr. Longshore is one of the founders of our Company and was appointed
as a director in November 2006. Mr. Longshore has been a director of our
Ghanaian subsidiaries, XGEL and XOG Ghana, since April 2006 and XG Mining, since
June 2006. Mr. Longshore has approximately 16 years of business experience.
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Since 1995 to the present, Mr. Longshore has been President of Brokton
International Ltd., a Turks & Caicos Islands, British West Indies based private
investment company focused on investing in natural resource companies. Since
February 2004 until February 2006, Mr. Longshore has provided financial advisory
consulting services to our Company through his corporation, Brokton
International Ltd From 1990 to 1995, he was a salesman for UNUM Insurance
Company selling in both the United States and Canada.
In August 2002, Mr. Longshore, formerly known as James Pincock, entered
into a settlement agreement and order with the Ontario Securities Commission
(the "OSC"). Pursuant to a settlement agreement reached between the OSC and Mr.
Longshore, he voluntarily agreed to abide by the order which included, among
other things, that he cease trading in securities for five years from the date
of the order (until August 27, 2007), with the exception that after three years
he can trade in securities beneficially owned by him in his personal accounts in
his name, and that he be prohibited from becoming or acting as an officer or
director of any issuer in Ontario or an officer or director of any issuer which
has an interest directly or indirectly in any registrant, for a period of five
years. Mr. Longshore paid the OSC CAD$20,000 (US$17,740) for cost incurred by
the OSC and its Staff with respect to the proceeding. Mr. Longshore disclosed
this matter to the Company prior to his appointment as a director and advised
that as he was a non-resident of Ontario at the relevant time, he had sought,
relied and acted upon poor financial and legal advice of Ontario advisors and
completed certain securities transactions which ultimately gave rise to the
Order.
YVES PIERRE CLEMENT, P. Geo.
Vice-President, Exploration
Mr. Clement was appointed Vice-President, Exploration of our Company in
May 2006. Mr. Clement has over 19 years experience in the generation, evaluation
and development of a wide variety of mineral resources hosted by a broad
spectrum of geological environments in Canada and South America. Prior to
joining our Company, Mr. Clement was senior project geologist for Lake Shore
Gold Corp. in the Timmins lode gold camp from August 2005 to April 2006 and was
formerly exploration manager for Aurora Platinum Corp.'s Sudbury operations from
August 2000 to July 2005. Prior to joining Aurora, Mr. Clement was senior
project geologist/exploration manager for Southwestern Resources Corp. where he
was responsible for the generation of precious and base metal exploration
opportunities in Peru and Chile. Mr. Clement's experience will allow us to
further maximize the value of our existing portfolio of projects, as well as
allowing us to expand our strategy of growth through strategic acquisitions.
Mr. Clement devotes approximately 50% of his time in consulting
services to our Company. He provides 50% of his time to an unrelated company. He
has entered into a management consulting agreement but has not entered into a
non-competition and non-disclosure agreement with our Company.
ALHAJI NANTOGMA ABUDULAI, BA
Vice-President, Ghana Operations
Mr. Abudulai was appointed as Vice-President, Ghana Operations of our
Company in April 2005. He is also the Secretary and the President, Community
Relations and a director of our Ghanaian subsidiaries. Mr. Abudulai has more
than 12 years of business experience in the mining industry. Since 1994 to the
present, he has been the managing director of CME (Ghana) Ltd. and a director of
CME (Nigeria) Ltd. where his responsibilities included protocol and coordination
of government and local authority affairs in Ghana and overseeing logistical
support. Mr. Abudulai is familiar and experienced with respect to obtaining
mining permits, prospecting and reconnaissance licences and the government
regulations relating thereto and is knowledgeable in connection with
environmental and forestry issues, immigration and customs affairs. He is also
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the President of the Canadian Business Association in Ghana. Mr. Abudulai's
primary responsibilities with our Company are the management of our Ghanaian
subsidiaries and the continued improvement of community and government
relations. His experience and background will assist us with respect to
acquiring approvals, prospecting licences, mining leases and related permits and
renewals from the relevant government authorities in order to advance our
operations in Ghana, acting as our primary government liaison in connection
therewith and will be involved in the hiring of skilled mining personnel and
laborers for our mining operations.
Mr. Abudulai devotes approximately 60% of his time in consulting
services to our Company. He provides 40% of his time to unrelated companies. He
has entered into a management consulting agreement but has not entered into a
non-competition and non-disclosure agreement with our Company.
All of our executive officers were awarded nonqualified stock options
as disclosed elsewhere in this Prospectus.
SIGNIFICANT CONSULTANTS
We engage the consulting services of all of our officers. We further
engage the consulting services of our Manager, Lode Gode Exploration, Senior
Project Manager, Exploration and Project Manager, Operations with respect to our
Ghanaian subsidiaries and have entered into consulting agreements with each of
them.
We have engaged the consulting services of Stewart Winter, B.A.Sc.,
Mining Engineering, M.Sc. (App.), Geological Sciences, as our Manager, Lode Gold
Exploration. He acts as a special advisor to our Board. Mr. Winter has 49 years'
experience in the mining industry. He has been the President of Winterbourne
Explorations Ltd., a private geological consulting company since 1981 to the
present and provides consulting services with respect to gold, silver, uranium,
diamonds and base metals for companies with properties in Canada, South America
and China. Mr. Winter was the Exploration Manager of Southwestern Gold
Corporation from 1996 to 1998.
One of our business strategies is to outsource other services as
required by our Company from time to time by engaging consultants on an
as-needed basis or entering into special purpose contracts with a view to
maintaining our overhead at a reasonable, affordable cost.
There are no family relationships between any of our officers or
directors. Each director is elected at our annual meeting of stockholders and
holds office until the next annual meeting of stockholders, or until his
successor is elected and qualified.
CORPORATE GOVERNANCE MATTERS
COMMITTEES GENERALLY
Our Board of Directors has not established any committees. Because we
do not have any independent directors, our Board of Directors believes that the
establishment of committees of the Board would not provide any benefits to our
company and could be considered more form than substance.
AUDIT COMMITTEE
Our Board has not yet established an audit committee. The functions of
the audit committee are currently performed by the entire Board. We are not
currently subject to any law, rule or regulation requiring that we establish or
maintain an audit committee. We may establish an audit committee in the future
if the Board determines it to be advisable or we are otherwise required to do so
by applicable law, rule or regulation.
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BOARD OF DIRECTORS INDEPENDENCE
Our Board consists of three members. We are not currently subject to
any law, rule or regulation requiring that all or any portion of our Board
include "independent" directors. None of our directors are considered to be an
"independent" director, within the meaning of Nasdaq Marketplace Rule 4200.
AUDIT COMMITTEE FINANCIAL EXPERT
We have not yet established an audit committee and we do not have an
"audit committee financial expert" within the meaning of Item 401(e) of
Regulation S-B. In general, an "audit committee financial expert" is an
individual member of the audit committee (board of directors) who (a)
understands generally accepted accounting principles and financial statements,
(b) is able to assess the general application of such principles in connection
with accounting for estimates, accruals and reserves, (c) has experience
preparing, auditing, analyzing or evaluating financial statements comparable to
the breadth and complexity to the Company's financial statements, (d)
understands internal controls over financial reporting (e) understands audit
committee functions, and (f) is an independent director.
Our Board of Directors is comprised of individuals who were integral to
our development and who are involved in our day to day operations. While we
would prefer that one or more of our directors be an audit committee financial
expert, none of these individuals who have been key to our development have the
requisite professional background. As with most small, early stage companies
until such time our company further develops its business, achieves a strong
revenue base and has sufficient working capital to purchase directors and
officers insurance, we do not have any immediate prospects to attract
independent directors. When we are able to expand our Board of Directors to
include one or more independent directors, we intend to establish an Audit
Committee of our Board of Directors. It is our intention that one or more of
these independent directors will also qualify as an audit committee financial
expert.
CODE OF ETHICS
We have adopted a Code of Ethics applicable to our Chief Executive
Officer, principal financial and accounting officers and persons performing
similar functions. A Code of Ethics is a written standard designed to deter
wrongdoing and to promote (a) honest and ethical conduct, (b) full, fair,
accurate, timely and understandable disclosure in regulatory filings and public
statements, (c) compliance with applicable laws, rules and regulations, (d) the
prompt reporting violation of the code and (e) accountability for adherence to
the Code. A copy of our Code of Ethics is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part, and we will
provide a copy, without charge, to any person desiring a copy of the Code of
Ethics, by written request to us at our principal offices.
NOMINATING COMMITTEE
We have not yet established a nominating committee. Our Board, sitting
as a board, performs the role of a nominating committee. We are not currently
subject to any law, rule or regulation requiring that we establish a nominating
committee.
COMPENSATION COMMITTEE
We have not yet established a compensation committee. Our Board,
sitting as a board, performs the role of a compensation committee. We are not
currently subject to any law, rule or regulation requiring that we establish a
compensation committee.
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NOMINATION OF DIRECTORS
We do not have a policy regarding the consideration of any director
candidates which may be recommended by our stockholders, including the minimum
qualifications for director candidates, nor has our Board of Directors
established a process for identifying and evaluating director nominees. We have
not adopted a policy regarding the handling of any potential recommendation of
director candidates by our stockholders, including the procedures to be
followed. Our Board has not considered or adopted any of these policies as we
have never received a recommendation from any stockholder for any candidate to
serve on our Board of Directors. Given our relative size and lack of directors
and officers insurance coverage, we do not anticipate that any of our
stockholders will make such a recommendation in the near future. While there
have been no nominations of additional directors proposed, in the event such a
proposal is made, all members of our Board will participate in the consideration
of director nominees.
EXECUTIVE COMPENSATION
CASH COMPENSATION TABLE
The following table sets forth information relating to all compensation
awarded to, earned by or paid by us during each of the two fiscal years ended
December 31, 2006 and 2005 respectively, to: (a) our chief (principal) executive
officer; (b) each of our executive officers who was awarded, earned or we paid
more than $100,000; and (c) up to two additional individuals for whom disclosure
would have been made in this table but for the fact that the individual was not
serving as an executive officer of our company at December 31, 2006. The value
attributable to any option awards is computed in accordance with FAS 123R.
SUMMARY COMPENSATION TABLE
Nonqualified All
Name and Stock Option Non-Equity Deferred Other
principal Salary Bonus Awards Awards Incentive Plan Compensation Compensation Total
position Year ($) ($) ($) ($) Compensation ($) Earnings ($) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i) (j)
--------------- ---- ------ ----- ------ ----------- ---------------- ------------ ------------ -----
William Edward 2006 0 0 0 $176,247(2) 0 0 0 0
McKechnie, CEO,
CFO and 2005 0 0 0 $ 91,272(3) 0 0 0 0
Chairman (1)
(1) Mr. McKechnie was appointed as our CEO on August 26, 2005. Our Company has
entered into a management consulting agreement with Goldeye Consultants
Ltd., a corporation of which Mr. McKechnie is a director and from which
Mr. McKechnie receives this compensation. Mr. McKechnie has executed a
non-disclosure and non-competition agreement.
(2) Mr. McKechnie was granted 216,000 nonqualified stock options on April 21,
2006 at an exercise price of $0.70 per share for a period of three years
expiring on April 21, 2009. These options vest as to 6,000 per month
during the option period. The options will be cancelled 90 days following
Mr. McKechnie's termination or one year following his death if not
exercised. Mr. McKechnie was granted 200,000 nonqualified stock options on
August 1, 2006 at an exercise price of $0.90 per share for a period of
three years expiring on August 1, 2009. These options will be cancelled 90
days following Mr. McKechnie's termination or one year following his death
if not exercised.
(3) Mr. McKechnie was granted 300,000 nonqualified stock options on June 21,
2005 at an exercise price of $0.55 per share for a period of ten years
expiring on June 20, 2009. These options vest as to 6,250 per month during
the option period. The options will be cancelled 90 days following Mr.
McKechnie's termination or one year following his death if not exercised.
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OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table sets forth information concerning our grant of
options to purchase shares of our common stock during the fiscal year ended
December 31, 2006 to each person named in the Summary Compensation table.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
OPTION AWARDS STOCK AWARDS
-------------------------------------------------------------- --------------------------------------
Equity
Incentive
Plan
Market Awards:
Number Value Equity Market or
of of Incentive Payout
Equity Shares Shares Plan Value of
Incentive or or Awards: Unearned
Plan Awards: Units Units Number of Shares,
Number of Number of Number of of of Unearned Units or
Securities Securities Securities Stock Stock Shares, Other
Underlying Underlying Underlying That That Units or Rights
Unexercised Unexercised Unexercised Option Have Have Other That Have
Options Options Unearned Exercise Option Not Not Rights that Not
(#) (#) Options Price Expiration Vested Vested Have Not Vested
Name Exercisable Unexercisable (#) ($) Date (#) ($) Vested (#) (#)
(a) (b) (c) (d) (e) (f) (g) (h) (i) (j)
---------------- ----------- ------------- ------------ -------- ---------- ------ ------ ----------- ---------
William Edward 42,000 174,000 0 0.70 April 21, 0 0 0 0
McKechnie, CEO, 2009
CFO and Chairman 22,220 177,780 0 0.90 August 1,
2009
COMPENSATION OF DIRECTORS
We do not pay fees to directors for their attendance at meetings of the
Board of Directors or committees; however, we may adopt a policy of making such
payments in the future. We have not established standard compensation
arrangements for our directors and the compensation payable, if any, to each
individual for their service on our Board will be determined from time to time
by our Board of Directors based upon the amount of time expended by each of the
directors on our behalf. We will reimburse out-of-pocket expenses incurred by
directors in attending board and committee meetings. The following table
provides information concerning the compensation of our directors for the fiscal
year ended December 31, 2006:
DIRECTOR COMPENSATION
Non-
Qualified
Fees Non-Equity Deferred
Earned or Incentive Compensa- All Other
Paid in Stock Option Plan tion Compensa-
Cash Awards Awards Compensation Earnings tion Total
Name ($) ($) ($) ($) ($) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h)
--------- --------- ------ ------ ------------ --------- --------- -----
William $0 $0 $0 $0 $0 $0 $0
Edward
McKechnie
Rebecca $0 $0 $0 $0 $0 $0 $0
Kiomi
Mori
James $0 $0 $0 $0 $0 $0 $0
Werth
Longshore
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2005 EQUITY INCENTIVE COMPENSATION PLAN
On June 21, 2005, our Board authorized and approved the 2005 Equity
Incentive Compensation Plan (the "PLAN"). Under the Plan, a total of 3,000,000
shares of our common stock has been reserved for issuance upon exercise of
nonqualified stock options ("NSO'S") (collectively, the "OPTIONS"), stock
bonuses and rights to purchase awarded from time to time, to our officers,
directors, employees and consultants. Since the Plan was not approved by the
shareholders of the Company, we are not permitted to issue any incentive stock
options under the Plan.
The Plan is currently administered by our Board. Under the Plan, the
Board determines which of our officers, directors, employees and consultants are
to be granted awards (individually, an "OPTIONEE"), as well as the material
terms of each award. Subject to the provisions of the Plan, the Board determines
who shall receive awards, the number of shares of common stock that may be
purchased under the awards, the time and manner of exercise of Options and
exercise prices. At its discretion, the Board also determines the form of
consideration to be received upon exercise and may permit the exercise price of
Options granted under the Plan to be paid in whole or in part with previously
acquired shares and/or the surrender of options. The term of Options granted
under the Plan may not exceed 10 years. The exercise price for NSO's may not be
less than 100% of the fair market value of our common stock on the date of
grant.
Absent registration under the Securities Act of 1933, as amended, or
the availability of an applicable exemption therefrom, shares of common stock
issued upon the exercise of Options or as restricted stock awards will be
subject to restrictions on sale or transfer.
As of the date of this Prospectus, we have granted 1,996,000 NSO's to
purchase 1,996,000 shares under the Plan. We may, in the future, authorize the
grant of options and/or the issuance of warrants for the foregoing purposes and
other valid corporate purposes.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table sets forth information relating to our outstanding
equity compensation plans as of December 31, 2006:
-------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO WEIGHTED AVERAGE EXERCISE FUTURE ISSUANCE UNDER
BE ISSUED UPON EXERCISE PRICE OF OUTSTANDING EQUITY COMPENSATION
OF OUTSTANDING OPTIONS, OPTIONS, WARRANTS AND PLAN (EXCLUDING SECURITIES
WARRANTS AND RIGHTS RIGHTS REFLECTED IN COLUMN A)
-------------------------------------------------------------------------------------------------------------
Equity Compensation
Plans Approved by
Security Holders ........... N/A N/A N/A
-------------------------------------------------------------------------------------------------------------
Equity Compensation
Plans Not Approved by
Security Holders ...........
-------------------------------------------------------------------------------------------------------------
2005 Equity Incentive
Compensation Plan .... 1,996,000 $0.72 1,004,000
-------------------------------------------------------------------------------------------------------------
TOTAL ...................... 1,996,000 $0.72 1,004,000
-------------------------------------------------------------------------------------------------------------
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MANAGEMENT CONSULTING AGREEMENTS
We have entered into the following management consulting agreements
with officers of our Company.
MANAGEMENT CONSULTING AGREEMENT WITH CEO
We entered into a management consulting agreement with our CEO on July
1, 2006 for a term of five years. Mr. McKechnie, our CEO is compensated
CAD$5,000 (US$4,404) per month, through Goldeye Consultants Ltd. ("GOLDEYE"), a
Turks & Caicos Islands, British West Indies private corporation of which he is a
director and is reimbursed for expenses incurred by him on behalf of our
Company. We plan to increase the compensation payable to Goldeye to (i)
CAD$10,000 (US$8,820) upon the earlier of the Bulk Test achieving profitability
or being completed; and then we plan to increase the compensation payable to
Goldeye to (ii) CAD$15,000 (US$13,231) upon the earlier of the full scale mining
operation we anticipate conducting at our Kwabeng concession achieving
profitability or having occurred for two months. In the event of termination of
Goldeye, without cause, Goldeye shall be paid compensation equivalent to six
months' fees, based on the rate of compensation being paid at the relevant time.
In the event of a Change of Control (as defined herein), Goldeye shall be paid,
at the time of termination, compensation equivalent to 18 months' fees, based on
the rate of compensation being paid at the relevant time. For clarity purposes,
a "CHANGE OF CONTROL" shall mean the occurrence of (a) any person, other than an
Employee (as such term is used in Section 13(d) and 14(d) of the Exchange Act is
or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act, directly or indirectly, of securities of the Company representing 50% or
more of the combined voting power of the Company's outstanding securities then
having the right to vote at elections of directors; or (b) the individuals who
at the commencement date of the agreement entered into between the consultant
and our Company (the "MC AGREEMENT"), constitute the Board, cease for any reason
to constitute a majority thereof unless the election, or nomination for
election, of each new director was approved by a vote of at least two-thirds of
the directors then in office who were directors at the commencement of the MC
Agreement; or (c) there is a failure to elect two or more candidates nominated
by management of the Company to the Board; or (d) the business of the Company
for which the consultant's services are principally performed is disposed of by
the Company pursuant to a partial or complete liquidation of the Company, a sale
of assets (including stock of a subsidiary of our Company) or otherwise. Goldeye
shall provide certain services to our Company including, but not limited to,
overseeing ongoing organization and development of the corporate infrastructure
of our Company resulting in a value added support team, identifying, developing
and directing the implementation of our business strategy, planning and
directing our business activities to achieve stated/agreed targets and standards
for financial and trading performance, quality, culture and compliance with
regulatory matters and ensuring organization accountability, internal controls
and responsibilities are being complied with by all support team members.
MANAGEMENT CONSULTING AGREEMENT WITH VICE-PRESIDENT, EXPLORATION
We entered into a management consulting agreement with our
Vice-President, Exploration ("VPE") on May 1, 2006 for a term of 36 months. Our
VPE is paid CAD$5,000 (US$4,404) per month and is reimbursed for expenses
incurred by him on behalf of our Company. Our VPE shall be paid compensation
equivalent to 18 months' fees, based on the rate of compensation being paid at
the relevant time in the event of (i) termination without cause; or (ii) a
Change of Control. Our VPE shall provide certain services to our company
including, but not limited to, making project or property site attendances as
may be required from time to time, preparing progress reports with respect to
our mineral exploration projects, conducting due diligence as may be required
from time to time in connection with potential mineral properties; reviewing
geological data and liaising with principal owners of mineral properties in
which our Company may wish to acquire an interest, meeting with government
authorities and retaining technical experts, making recommendations to the Board
and its relevant committees with respect to the acquisition and/or abandonment
of mineral exploration properties and preparing and implementing, subject to
Board approval, plans for the operation of Xtra-Gold including plans for
exploration programs, costs of operations and other expenditures in connection
with our mineral projects.
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MANAGEMENT CONSULTING AGREEMENT WITH VICE-PRESIDENT, GHANA OPERATIONS
We entered into a management consulting agreement with our
Vice-President, Ghana Operations ("VPG") on November 1, 2006 for a term of one
year. Our VPG is paid $1,000 per month and is reimbursed for expenses incurred
by him on behalf of our Company. Our VPG shall provide certain services to our
company including, but not limited to, managing and improving community and
government relations as may be required from time to time including but not
necessarily restricted to, relationships with the Minerals Commission, the
Minister of Lands, Forestry and Mines, the Water Resource Commission, the EPA
and the GNPC, by acting as Xtra-Gold's primary liaison and attending meetings
with related officials, managing specific executions on an as needed basis
including, but not limited to, facilitating the procurement of licences, leases,
permits and other government approvals and handling any political or
environmental issues that may arise from time to time, participating in property
acquisitions and dispositions from time to time and reviewing all material
contracts to be entered into by our Ghanaian subsidiaries.
MANAGEMENT CONSULTING AGREEMENT WITH SECRETARY AND TREASURER
We entered into a management consulting agreement with our Secretary
and Treasurer (the "ST") on July 1, 2006 for a term of five years. Our ST is
compensated CAD$8,500 (US$7,497) per month and is reimbursed for expenses
incurred by her on behalf of our Company. We plan to increase the compensation
payable to our ST to (i) CAD$10,000 (US$8,820) upon the earlier of the full
scale mining operation we anticipate conducting at our Kwabeng concession
achieving profitability or having occurred for two months. In the event of
termination of our ST, without cause, the ST shall be paid compensation
equivalent to six months' fees, based on the rate of compensation being paid at
the relevant time. In the event of a Change of Control, the ST shall be paid, at
the time of termination, compensation equivalent to 18 months' fees, based on
the rate of compensation being paid at the relevant time. The ST shall provide
certain services to our Company including, but not limited to, preparing and
maintaining all corporate records and overseeing all corporate and regulatory
filings, maintaining the financial records of our Company, assisting our CEO
with the day-to-day management of our Company and liaising with our legal
counsel, auditors, stock transfer agent and all other professional advisors.
COMPENSATION OF MANAGEMENT
The terms of these management consulting agreements were determined by
our Board of Directors, two members of which are our executive officers who are
parties to certain of these agreements. Our Board of Directors believe that the
compensation payable to our executive officers is appropriate in light of the
risks and uncertainty of our business, the time committed by such individuals,
the compensation levels of other executives in similarly sized companies and
their ability to command at least this level of salary in other commercial
operations. These individuals have complete authority in determining the amount
of compensation to be paid and the other terms of management compensation. Our
Board of Directors did not consult with any consultants or other third parties
in determining the amount of compensation to be paid under the management
consulting agreements.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
As authorized by the Nevada Revised Statutes, our articles of
incorporation ("ARTICLES") provide that none of our directors shall be
personally liable to us or our stockholders for monetary damages for breach of
fiduciary duty as a director, except liability for:
o any breach of a director's duty of loyalty to our Company or its
stockholders;
o acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
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o unlawful payments of dividends or unlawful stock redemptions or
repurchases; and
o any transaction from which the director derived an improper personal
benefit.
This provision limits our rights and the rights of our stockholders to
recover monetary damages against a director for breach of the fiduciary duty of
care except in the situations described above. This provision does not limit our
rights or the rights of any stockholder to seek injunctive relief or rescission
if a director breaches his duty of care. These provisions will not alter the
liability of directors under federal securities laws. Our by-laws require us to
indemnify directors and officers against, to the fullest extent permitted by
law, liabilities which they may incur under the circumstances described above.
Our Articles further provide for the indemnification of any and all
persons who serve as our directors, officers, employees or agents to the fullest
extent permitted under Nevada law.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling our
Company pursuant to the foregoing provisions, we have been informed that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We have entered into certain transactions with certain of our
affiliates as described below. All of these transactions, except as expressly
provided below, have been approved, and the terms thereof determined, by our
board of directors excluding interested members of the board, if any. We believe
that the terms of these transactions are at least as beneficial to us as terms
we could obtain from unaffiliated third parties.
ACQUISITION OF SWISS PROPERTY
On October 28, 2003, prior to our acquisition of all of the issued and
outstanding capital stock of Xtra Energy, CaribGold Minerals, Inc. ("CARIBGOLD")
entered into a memorandum of agreement with Xtra Energy (the "CARIBGOLD
AGREEMENT"), under which Xtra Energy was granted the right and option to acquire
90% of CaribGold's interest in a mining property located in Switzerland provided
that Xtra Energy expended CAD$200,000 (USD$152,532) in exploration work on the
property by October 28, 2004, failing which the option would terminate and would
be reconveyed to CaribGold. Paul Zyla, who was our President and Chief Executive
Officer at the time of this transaction, was also the President and a director
of CaribGold and owned 647,500 common shares (5.51%) in the capital of CaribGold
at this time. As consideration for the option grant, Xtra Energy issued 20,000
non-refundable shares of its common stock to CaribGold. These shares were
subsequently exchanged for 20,000 shares of our common stock upon our
acquisition of all of the outstanding capital stock of Xtra Energy. In order to
exercise the option, our subsidiary would have been required to enter into a
joint venture agreement with CaribGold, operate the property and contribute our
share of expenditures of the joint venture. Our subsidiary did not expend the
required amount during the option exercise period. We permitted the option to
expire unexercised in order to permit us to devote our financial resources to
the acquisition of mineral properties in Ghana.
PROMISSORY NOTE ISSUED TO A FORMER OFFICER AND DIRECTOR OF OUR COMPANY
On January 12, 2006, the Board approved the issuance of an unsecured
promissory note (the "NOTE") in the aggregate amount of $66,302 in connection
with an account payable owing to a former officer and director of the Company
(the "NOTE HOLDER") with respect to unpaid consulting fees, expenses incurred on
behalf of our Company and a bonus. Under the terms of the Note, the Note Holder
had the option to convert any portion owing under the Note from time to time
into shares of our Company at the conversion price of $0.55 per share. On
January 31, 2006, the Note Holder provided us with a notice of conversion to
convert $50,000 of the outstanding Note into shares and was subsequently issued
90,909 shares on February 9, 2006.
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INVESTMENT IN A COMPANY OF WHICH A CURRENT OFFICER OF OUR COMPANY IS ALSO AN
OFFICER AND DIRECTOR AND OF WHICH A FORMER OFFICER AND DIRECTOR OF OUR COMPANY
IS ALSO AN OFFICER AND DIRECTOR
We invested an aggregate of CAD$123,000 (US$108,258), through
participation in two private placement transactions in August 2006 (CAD$18,000 -
US$15,946) and October 2006 (CAD$105,000 - US$92,312), in Ginguro Exploration
Inc., a private Ontario mineral exploration company which is seeking to become a
public company, of which a current officer of our Company is also a director and
officer and of which a former officer and director of our Company is also a
director and officer.
CONSULTING AGREEMENT WITH PRINCIPAL SHAREHOLDER
From February 1, 2004 through February 1, 2006, we were a party to a
consulting agreement with Brokton International Ltd. ("BROKTON"), a company
which owns 7.12% of our common stock and one of only two shareholders that owns
more than 5% of our issued and outstanding shares of common stock. Under the
terms of this agreement, we engaged Brokton as a consultant to advise our
Management with respect to hiring additional qualified management, providing
support with respect to operational matters and government compliance in Ghana,
mergers and acquisitions and financial advisory. James Longshore, one of the
directors of our Company, is the President of Brokton and exercises sole
investment, voting and disposition powers over the shares of Brokton. Mr.
Longshore is also a director of our wholly-owned subsidiaries, XGEL and XOG
Ghana (since April 2006) and XG Mining (since June 2006). From February 2004 to
February 2006, we paid Brokton an aggregate of $30,000 for its consulting
services and reimbursed Brokton for expenses incurred by Brokton on behalf of
our Company.
A PRINCIPAL SHAREHOLDER MANAGES OUR INVESTMENT PORTFOLIO
We currently, and since approximately four years ago, maintain our
brokerage account with Haywood Securities Inc. ("HAYWOOD") in connection with
our investment accounts. Haywood provides us with investment recommendations and
custodial services. Haywood is a member of the Toronto Stock Exchange, the TSX
Venture Exchange, the Montreal Exchange, the Canadian Trading and Quotation
System, the Canadian Investor Protection Fund, and the Investment Dealers
Association of Canada. In addition, Haywood Securities (USA) Inc., a wholly
owned subsidiary is a broker-dealer registered to transact securities business
in the United States and a member of the National Association of Securities
Dealers. We pay Haywood ordinary brokerage commissions on trade transactions and
our accounts with Haywood can be terminated at any time. Mark McGinnis, a
shareholder who owns 7.35% of our common stock and one of only two shareholders
that owns more than 5% of our issued and outstanding shares of common stock, is
an investment advisor with Haywood and is the manager of our accounts with
Haywood.
DIRECTORS' SECURITIES CANCELLED
In May 2005, an aggregate of 47,000,000 shares of our common stock
owned by Paul Zyla, a former director of our Company and William Edward
McKechnie, a current director of our Company, were returned to treasury and
cancelled pursuant to respective stock cancellation agreements entered into
between our Company and such directors. The parties agreed to the forgoing at
the time we acquired XGRI and undertook the 5 for 1 forward stock split for the
purpose of minimizing the dilution on our shareholders in the event that the
Corporation issued further shares in consideration of future financings,
acquisitions or other significant business transactions involving stock
issuances. The cancellation occurred as a condition to the acquisition of XG
Mining in December 2004.
CONSULTING FEES TO OFFICERS AND COMPANIES CONTROLLED BY DIRECTORS AND OFFICERS
We have entered into consulting agreements with our officers, or
companies controlled by our officers, for the services of our officers as set
out elsewhere in this Prospectus. As of December 31, 2005, we paid or accrued an
aggregate of $92,810 (2004 - $Nil) and as of December 31, 2006, $ $370,428.35
(December 31, 2005 - $92,809.51) , pursuant to these consulting agreements.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us as of February
1, 2007, relating to the beneficial ownership of shares of our common stock by:
o each person who is known by us to be the beneficial owner of more
than five percent of our outstanding common stock;
o each director;
o each executive officer named in the Summary Compensation Table; and
o all executive officers and directors as a group.
Unless otherwise indicated, the address of each beneficial owner in the
table set forth below is care of Xtra-Gold Resources Corp., 6 Kersdale Avenue,
Toronto, Ontario, Canada, M6M 1C8.
We believe that all persons named in the table, or the footnotes
thereto, have sole voting and investment power with respect to all shares of
common stock shown as being owned by them.
Under securities laws, a person is considered to be the beneficial
owner of securities owned by him (or certain persons whose ownership is
attributed to him) and that can be acquired by him within 60 days from the date
of this Prospectus, including upon the exercise of options, warrants or
convertible securities. We determine a beneficial owner's percentage ownership
by assuming that options, warrants or convertible securities that are held by
him, but not those held by any other person, and which are exercisable within 60
days of the date of this Prospectus, have been exercised or converted.
The table is based on 28,088,157 shares currently outstanding. Except
as otherwise required by SEC rules relating to beneficial ownership, the table
does not give effect to the issuance of up to:
o 996,056 shares in the event of exercise of outstanding Warrants;
o 900,000 shares in the event of conversion of Convertible Debentures;
or
o 15,750 shares in the event of conversion of Accrued Interest.
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
William Edward McKechnie ........... 441,690 shares(1) 1.57%
Rebecca Kiomi Mori ................. 33,000 shares(2) .12%
Yves Pierre Clement ................ 99,000 shares(3) .35%
Alhaji Nantogma Abudulai ........... 133,000 shares(4) .47%
James Werth Longshore .............. 2,000,000 shares(5) 7.12%
OFFICERS AND DIRECTORS
AS A GROUP (5 PERSONS) ............. 2,706,690 shares(1) thru (5) 9.64%
5% STOCKHOLDERS:
Brokton International Ltd.
P.O. Box 150, Design House
Providenciales, Turks and Caicos
British West Indies ................ 2,000,000 shares(5) 7.12%
Mark T. McGinnis
236 Alscot Crescent
Oakville, Ontario, Canada L6J 4R4 .. 2,064,526 shares(6) 7.37%
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(1) Consists of (a) 200,000 shares of common stock; (b) 206,080 shares
which are issuable upon the exercise of options that have vested and
are currently exercisable; and (c) 35,610 shares which shall become
issuable upon options that shall vest and be exercisable within 60 days
following the date of this Prospectus; namely February 21 and March 1
and 21 and April 1, 2007. Does not include 474,310 shares issuable upon
the exercise of options that have not yet vested and will vest monthly
as to 6,250, 6,000 and 5,555 respectively in each month.
(2) Consists of27,000 shares which are issuable upon the exercise of
options that have vested and are currently exercisable; and (c) 6,000
shares which shall become issuable upon options that shall vest and be
exercisable within 60 days following the date of this Prospectus;
namely February 21 and March 21, 2007. Does not include 75,000 shares
issuable upon the exercise of options that have not yet vested and will
vest monthly as to 3,000 in each month.
(3) Consists of81,000 shares which are issuable upon the exercise of
options that have vested and are currently exercisable; and (c) 18,000
shares which shall become issuable upon options that shall vest and be
exercisable within 60 days following the date of this Prospectus;
namely March 1 and April 1, 2007. Does not include 225,000 shares
issuable upon the exercise of options that have not yet vested and will
vest monthly as to 9,000 in each month.
(4) Consists of (a) 100,000 shares of common stock; (b)27,000 shares which
are issuable upon the exercise of options that have vested and are
currently exercisable; and (c) 6,000 shares which shall become issuable
upon options that shall vest and be exercisable within 60 days
following the date of this Prospectus; namely March and April 1, 2007.
Does not include75,000 shares issuable upon the exercise of options
that have not yet vested and will vest monthly as to 3,000 in each
month.
(5) Brokton International Ltd. is a British West Indies corporation, whose
sole beneficial owner is James Longshore. Mr. Longshore exercises sole
investment, voting and disposition powers over the shares included in
the table.
(6) Consists of (a) 1,911,681 shares of common stock held by Mark McGinnis;
and (b) 152,845 shares of common stock held by his spouse.
CHANGE IN PERCENTAGE OWNERSHIP OF PRINCIPAL SHAREHOLDERS
The following provides the changes in percentage ownership of Brokton
International Ltd., whose sole beneficial owner is James Longshore, a director
of our company since November 2006, and Mark McGinnis, the only shareholders of
our company who currently own more than 5% of the issued and outstanding shares
of our common stock:
Brokton International Ltd.
o In October 2003, Brokton International Ltd., a former shareholder of
our subsidiary XGRI, received 50,000 shares of common stock,
representing approximately .3% of our then issued and outstanding
shares, in connection with the Share Exchange with our subsidiary XGRI.
o In January 2004, Brokton International Ltd. acquired 2,000,000 shares
of our common stock from a principal shareholder increasing its
ownership interest to approximately 3.5% of our then issued and
outstanding shares.
o In May 2005, the ownership interest of Brokton International Ltd.
increased to approximately 15% as a result of the return to treasury of
47,000,000 shares by two principal shareholders.
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o In August 2006 Brokton International Ltd. acquired an aggregate of
250,000 shares from two shareholders.
o Between March 2004 and November 2006, we undertook nine private
placements of shares of common stock which resulted in dilution to the
percentage ownership of Brokton International Ltd. to 7.12%.
Mark McGinnis
o In January 2004, Mark McGinnis acquired 1,666,666 shares of our common
stock, representing 2.7% of our then issued and outstanding shares,
from a principal shareholder.
o In April 2004, the spouse of Mark McGinnis acquired 100,000 shares
under a private placement transaction.
o In May 2005, the ownership interest of Mark McGinnis increased to
approximately 11% as a result of the return to treasury of 47,000,000
shares by two principal shareholders.
o During 2006, Mark McGinnis and his spouse acquired 297,860 shares in
trust.
o Between March 2004 and November 2006, we undertook nine private
placements of shares of common stock which resulted in dilution to the
percentage ownership of Mark McGinnis. to 7.37%.
DESCRIPTION OF SECURITIES
GENERAL
The following description of our common stock and provisions of our
Articles is a summary thereof and is qualified by reference to our Articles,
copies of which may be obtained upon request. Our authorized capital consists of
250,000,000 shares of common stock, par value $0.001 per share. As of the date
of this Prospectus, 28,088,157 shares of common stock were issued and
outstanding.
COMMON STOCK
Holders of shares of common stock are entitled to share, on a ratable
basis, such dividends as may be declared by the Board out of funds, legally
available therefor. Upon our liquidation, dissolution or winding up, after
payment to creditors, our assets will be divided pro rata on a per share basis
among the holders of our common stock.
Each share of common stock entitles the holders thereof to one vote.
Holders of common stock do not have cumulative voting rights which means that
the holders of more than 50% of the shares voting for the election of directors
can elect all of the directors if they choose to do so, and, in such event, the
holders of the remaining shares will not be able to elect any directors. Our
By-Laws require that only a majority of our issued and outstanding shares need
be represented to constitute a quorum and to transact business at a
stockholders' meeting. Our common stock has no preemptive, subscription or
conversion rights and is not redeemable by us.
COMMON STOCK PURCHASE WARRANTS
There are currently outstanding Warrants to purchase an aggregate of
996,056 shares of our common stock. The Warrants were issued in connection with
financing transactions. The Warrants are exercisable (i) at $1.50 per share and
expire on June 16, 2007; (ii) at $1.50 per share and expire on July 31, 2007;
and (iii) at $1.50 per share and expire on October 31, 2007. The exercise price
of the warrants and the number of shares issuable upon the exercise of the
warrants is subject to adjustment in the event of stock splits, stock dividends
and reorganizations.
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CONVERTIBLE DEBENTURES
We completed a convertible debenture transaction with three investors
(the "DEBENTURE HOLDERS") in July 2005 for gross proceeds of US$900,000, the
outstanding principal balance of which is repayable on or before June 30, 2010.
Interest is calculated at the rate of 7% per annum on the outstanding principal
and is payable on a quarterly basis on the last days of September, December,
March and June in each year. The Debenture Holders have the option to convert
any portion of the outstanding principal owing and the Accrued Interest into
shares at a conversion price of $1.00 per share. The conversion price and the
number of shares issuable upon the conversion of the Convertible Debentures and
Accrued Interest is subject to adjustment in the event of stock splits, stock
dividends and reorganizations. An aggregate of 915,750 shares has been reserved
for issuance in connection with the debt conversion.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Continental
Stock Transfer & Trust Company, 17 Battery Place, New York, NY 10004-1125. Our
transfer agent may be reached by telephone at (212) 509-4000.
SELLING SECURITY HOLDERS
BACKGROUND OF THE TRANSACTIONS
This Prospectus covers the resale of 8,633,128 shares of our common
stock issued or issuable in connection with the following transactions:
o 53,500 shares issued upon conversion of warrants we issued in
connection with a private placement transaction completed on March
31, 2004;
o 55,000 shares issued upon conversion of warrants we issued in
connection with a private placement transaction completed on May 31,
2004 of which 30,000 shares are being registered for resale herein;
o 536,218 shares we issued pursuant to a private placement transaction
completed on June 30, 2005, and 177,200 shares issued upon
conversion of warrants issued in the transaction;
o 900,000 shares issuable upon conversion of an aggregate of $900,000
convertible debentures issued in a convertible debenture financing
completed on July 7, 2005;
o 15,750 shares issuable upon conversion of up to $15,750 Accrued
Interest in connection with the convertible debenture financing
completed on July 7, 2005;
o 300,000 shares we issued pursuant to a private placement transaction
completed on August 31, 2005;
o 1,549,354 shares we issued pursuant to a private placement
transaction completed on November 7, 2005;
o 84,909 shares we issued pursuant to the conversion of a promissory
note to a former officer and director completed on February 9, 2006;
o 792,029 shares we issued pursuant to a private placement transaction
completed on March 6, 2006 of which 542,029 shares are being
registered for resale herein;
o 578,112 shares we issued and 289,056 shares issuable upon conversion
of warrants we issued pursuant to a private placement transaction
completed on June 16, 2006;
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o 1,132,000 shares we issued and 566,000 shares issuable upon exercise
of warrants we issued pursuant to a private placement transaction
completed on July 24, 2006;
o 282,0000 shares we issued and 141,000 shares issuable upon exercise
of warrants we issued pursuant to a private placement transaction
completed on November 27, 2006; and
o 1,456,000 shares issuable upon conversion of options issued under
our Equity Compensation Plan on June 21, 2005 (300,000); on April
21, 2006 (324,000); May 1, 2006 (432,000) and August 1, 2006
(400,000).
SELLING SECURITY HOLDERS
The following table sets forth:
o the name of each Selling Security Holder;
o the number or shares of common stock beneficially owned by each
Selling Security Holder as of the date of this Prospectus, giving
effect to the exercise of the Selling Security Holders' Warrants;
o the number of shares being offered by each Selling Security Holder;
and
o the number of shares to be owned by each Selling Security Holder
following completion of this Offering.
Beneficial ownership is determined in accordance with the rules of the
SEC and generally includes voting or investment power with respect to securities
and includes any securities which the person has the right to acquire within 60
days through the conversion or exercise of options, warrants, promissory notes
and any other security or other right. The information as to the number of
shares of our common stock owned by each Selling Security Holder is based upon
our records and information provided by our transfer agent.
We may amend or supplement this Prospectus from time to time to update
the disclosure set forth in the table. As the Selling Security Holders
identified in the table may sell some or all of the shares owned by them which
are included in this Prospectus, and as there are currently no agreements,
arrangements or understandings with respect to the sale of any of the shares, no
estimate can be given as to the number of shares available for resale hereby
that will be held by the Selling Security Holders upon termination of the
offering made hereby. We have therefore assumed, for the purposes of the
following table, that the Selling Security Holders will sell all of the shares
owned by them that are being offered hereby, but will not sell any other shares
of our common stock that they presently own. We do not believe that any of the
Selling Security Holders are broker-dealers or affiliated with broker-dealers.
The shares of common stock being offered have been registered to permit
public sales and the Selling Security Holders may offer all or part of the
shares for resale from time to time. All expenses of the registration of the
common stock on behalf of the Selling Security Holders are being borne by us. We
will receive none of the proceeds of this offering.
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SHARES AND PERCENTAGE SHARES SHARES PERCENTAGE
OF CLASS OWNED AVAILABLE OWNED OF CLASS
BENEFICIALLY PRIOR TO PURSUANT TO AFTER AFTER
SELLING SECURITY HOLDER THIS OFFERING THIS PROSPECTUS OFFERING OFFERING
---------------------------------------------------------------------------------------------------------
Desjardins Securities Inc. (1) .... 50,000 (0.178%) 50,000 0 0%
---------------------------------------------------------------------------------------------------------
Haywood Securities Inc. (2) ....... 200,000 (0.712%) 200,000 0 0%
---------------------------------------------------------------------------------------------------------
Haywood Securities Inc. (3) ....... 60,000 (0.214%) 60,000 0 0%
---------------------------------------------------------------------------------------------------------
Haywood Securities Inc. (4) ....... 100,000 (0.356%) 100,000 0 0%
---------------------------------------------------------------------------------------------------------
Haywood Securities Inc. (5) ....... 100,000 (0.356%) 100,000 0 0%
---------------------------------------------------------------------------------------------------------
Haywood Securities Inc. (6) ....... 100,000 (0.356%) 100,000 0 0%
---------------------------------------------------------------------------------------------------------
Haywood Securities Inc. (7) ....... 15,000 (0.053%) 15,000 0 0%
---------------------------------------------------------------------------------------------------------
Haywood Securities Inc. (8) ....... 100,000 (0.356%) 100,000 0 0%
---------------------------------------------------------------------------------------------------------
1127024 Ontario Limited (9) ....... 35,000 (0.125%) 35,000 0 0%
---------------------------------------------------------------------------------------------------------
Alhaji Abudulai (10) .............. 108,000 (0.385%) 108,000 0 0%
---------------------------------------------------------------------------------------------------------
Anacort Capital Inc. (11) ......... 70,000 (0.249%) 70,000 0 0%
---------------------------------------------------------------------------------------------------------
Bank Julius Baer & Co. Ltd. (12) .. 25,000 (0.089%) 25,000 0 0%
---------------------------------------------------------------------------------------------------------
Ernst Baur (13) ................... 45,000 (0.160%) 45,000 0 0%
---------------------------------------------------------------------------------------------------------
Morton Berman ..................... 35,000 (0.126%) 35,000 0 0%
---------------------------------------------------------------------------------------------------------
Markus Bertschin (14) ............. 45,000 (0.160%) 45,000 0 0%
---------------------------------------------------------------------------------------------------------
Bradam Financial Holdings Ltd. (15) 777,500 (2.768%) 777,500 0 0%
---------------------------------------------------------------------------------------------------------
Brulene Inc. (16) ................. 142,000 (0.506%) 142,000 0 0%
---------------------------------------------------------------------------------------------------------
Katherine Carson .................. 19,354 (0.069%) 19,354 0 0%
---------------------------------------------------------------------------------------------------------
Earl Charleton (17) ............... 15,000 (0.053%) 15,000 0 0%
---------------------------------------------------------------------------------------------------------
John Richard Charlton ............. 200,000 (0.712%) 200,000 0 0%
---------------------------------------------------------------------------------------------------------
Sharon Ann Christie (18) .......... 75,000 (0.267%) 75,000 0 0%
---------------------------------------------------------------------------------------------------------
Yves Clement (19) ................. 324,000 (1.154%) 324,000 0 0%
---------------------------------------------------------------------------------------------------------
Norman Clements (20) .............. 155,000 (0.552%) 155,000 0 0%
---------------------------------------------------------------------------------------------------------
CMK Financial Holdings Ltd. (21) .. 240,000 (0.854%) 240,000 0 0%
---------------------------------------------------------------------------------------------------------
Court Global SA (22) .............. 6,000 (0.021%) 6,000 0 0%
---------------------------------------------------------------------------------------------------------
Daniel Earle (23) ................. 84,909 (0.302%) 84,909 0 0%
---------------------------------------------------------------------------------------------------------
Allen Emes ........................ 30,000 (0.107%) 30,000 0 0%
---------------------------------------------------------------------------------------------------------
Everest Asset Management SA (24) .. 250,000 (0.089%) 250,000 0 0%
---------------------------------------------------------------------------------------------------------
Kurt Groebli (25) ................. 15,000 (0.053%) 15,000 0 0%
---------------------------------------------------------------------------------------------------------
Haywood Securities Inc. (26) ...... 100,000 (0.356%) 100,000 0 0%
---------------------------------------------------------------------------------------------------------
Haywood Securities Inc. (27) ...... 20,000 (0.071%) 20,000 0 0%
---------------------------------------------------------------------------------------------------------
Arthur G. Hibbard ................. 90,000 (0.320%) 90,000 0 0%
---------------------------------------------------------------------------------------------------------
Fred Honea/Carmen De Liniers ...... 100,000 (0.356%) 100,000 0 0%
---------------------------------------------------------------------------------------------------------
Fred Honea (28) ................... 150,000 (0.534%) 150,000 0 0%
---------------------------------------------------------------------------------------------------------
Interloan AG (29) ................. 28,500 (0.101%) 28,500 0 0%
---------------------------------------------------------------------------------------------------------
Adrian Jaggi (30) ................. 30,000 (0.107%) 30,000 0 0%
---------------------------------------------------------------------------------------------------------
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SHARES AND PERCENTAGE SHARES SHARES PERCENTAGE
OF CLASS OWNED AVAILABLE OWNED OF CLASS
BENEFICIALLY PRIOR TO PURSUANT TO AFTER AFTER
SELLING SECURITY HOLDER THIS OFFERING THIS PROSPECTUS OFFERING OFFERING
---------------------------------------------------------------------------------------------------------
Kander Financial Corp. (31) ....... 100,000 (0.356%) 100,000 0 0%
---------------------------------------------------------------------------------------------------------
Michael and Vicki Lawrence (32) ... 45,000 (0.160%) 45,000 0 0%
---------------------------------------------------------------------------------------------------------
William Edward McKechnie (33) .... 716,000 (2.549%) 716,000 0 0%
---------------------------------------------------------------------------------------------------------
Frankie Mead (34) ................. 24,000 (0.085%) 24,000 0 0%
---------------------------------------------------------------------------------------------------------
Merlin Asset Holdings SA (35) ..... 27,000 (0.096%) 27,000 0 0%
---------------------------------------------------------------------------------------------------------
John Douglas Mills (36) ........... 200,000 (0.712%) 200,000 0 0%
---------------------------------------------------------------------------------------------------------
Rebecca Kiomi Mori (37) ........... 108,000 (0.385%) 108,000 0 0%
---------------------------------------------------------------------------------------------------------
Hans J. Morsches .................. 17,500 (0.062%) 17,500 0 0%
---------------------------------------------------------------------------------------------------------
Ron Nichol (38) ................... 15,000 (0.52%) 15,000 0 0%
---------------------------------------------------------------------------------------------------------
Basil Nola (39) ................... 30,000 (0.107%) 30,000 0 0%
---------------------------------------------------------------------------------------------------------
Christopher Nola (40) ............. 348,486 (1.240%) 348,486 0 0%
---------------------------------------------------------------------------------------------------------
Nube Administration Inc. (41) ..... 9,000 (0.032%) 9,000 0 0%
---------------------------------------------------------------------------------------------------------
Pipeline Displays and Fixtures (42) 50,000 (0.211%) 50,000 0 0%
---------------------------------------------------------------------------------------------------------
Piper Foundation (43) ............. 9,000 (0.032%) 9,000 0 0%
---------------------------------------------------------------------------------------------------------
Royal Trust Corp. of Canada (44) .. 1,665,000 (5.928%) 1,665,000 0 0%
---------------------------------------------------------------------------------------------------------
Peter Schmid ...................... 20,000 (0.071%) 20,000 0 0%
---------------------------------------------------------------------------------------------------------
Walter Schneider (45) ............. 175,000 (0.623%) 175,000 0 0%
---------------------------------------------------------------------------------------------------------
Matthias Schole (46) .............. 48,000 (0.171%) 48,000 0 0%
---------------------------------------------------------------------------------------------------------
Anita Shapolsky ................... 21,000 (0.075%) 21,000 0 0%
---------------------------------------------------------------------------------------------------------
N. Sleeva ......................... 9,750 (0.035%) 9,750 0 0%
---------------------------------------------------------------------------------------------------------
Richard Smith ..................... 40,000 (0.142%) 40,000 0 0%
---------------------------------------------------------------------------------------------------------
Sorrel Global Investments (47) .... 3,000 (0.011%) 3,000 0 0%
---------------------------------------------------------------------------------------------------------
Margaret Speckert ................. 100,000 (0.356%) 100,000 0 0%
---------------------------------------------------------------------------------------------------------
Suzanne Speckert .................. 6,000 (0.021%) 6,000 0 0%
---------------------------------------------------------------------------------------------------------
I. Spivack ........................ 2,400 (0.009%) 2,400 0 0%
---------------------------------------------------------------------------------------------------------
Tom Stefopulos .................... 6,000 (0.021%) 6,000 0 0%
---------------------------------------------------------------------------------------------------------
Marianne Strub .................... 3,750 (0.013%) 3,750 0 0%
---------------------------------------------------------------------------------------------------------
Subaraschi Foundation (48) ........ 31,500 (0.112%) 31,500 0 0%
---------------------------------------------------------------------------------------------------------
Sufran Investments Ltd. (49) ...... 50,000 (0.178%) 50,000 0 0%
---------------------------------------------------------------------------------------------------------
Eric Robert Taylor (50) ........... 316,529 (1.127%) 316,529 0 0%
---------------------------------------------------------------------------------------------------------
Thousand Hills Properties Inc. (51) 90,000 (0.320%) 90,000 0 0%
---------------------------------------------------------------------------------------------------------
Leon van der Merwe (52) ........... 250,000 (0.890%) 250,000 0 0%
---------------------------------------------------------------------------------------------------------
Steve E. Vlach .................... 36,000 (0.128%) 36,000 0 0%
---------------------------------------------------------------------------------------------------------
B. Wilson ......................... 4,200 (0.015%) 4,200 0 0%
---------------------------------------------------------------------------------------------------------
Peter Winnell (53) ................ 33,000 (0.117%) 33,000 0 0%
---------------------------------------------------------------------------------------------------------
J.W.T. Witzel ..................... 70,000 (0.249%) 70,000 0 0%
---------------------------------------------------------------------------------------------------------
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(1) John McFarlane exercises voting and dispositive power over all of the
shares beneficially owned by Desjardins Securities Inc. in trust for
John McFarlane.
(2) Brian Lines exercises voting control and dispositive power over all of
the shares beneficially owned by Haywood Securities Inc. in trust for
Brian Lines.
(3) Joanne Dorval-Dronyk exercises voting and dispositive power over all of
the shares beneficially owned by Haywood Securities Inc. in trust for
Joanne Dorval-Dronyk.
(4) Walter Dainard exercises voting and dispositive power over all of the
shares beneficially owned by Haywood Securities Inc. in trust for
Walter Dainard.
(5) Asad Sheikh exercises voting and dispositive power over all of the
shares beneficially owned by Haywood Securities Inc. in trust for Asad
Sheikh. (6) Richard Coglan exercises voting and dispositive power over
all of the shares beneficially owned by Haywood Securities Inc. in
trust for Richard Coglan.
(7) Slowjen Ltd. exercises voting and dispositive power over all of the
shares beneficially owned by Haywood Securities Inc. in trust for
Slowjen Ltd. George Pyfrom, President of Slowjen Ltd., makes decisions
as to the voting and disposition of the securities.
(8) Zapfe Holdings Inc. exercises voting and dispositive power over all of
the shares beneficially owned by Haywood Securities Inc. in trust for
Zapfe Holdings Inc. Verne Zapfe, President of Zapfe Holdings Inc.,
makes decisions as to the voting and disposition of the securities.
(9) 1127024 Ontario Limited is an Ontario, Canada private company based in
Thornhill, Ontario. Gordon Dreger, President of 1127024 Ontario
Limited, makes decisions as to the voting and disposition of the
securities.
(10) Consists of (a) 108,000 shares underlying options which will vest
monthly as to 3,000 options over a three year period, of which27,000
options have vested as of the date of this Prospectus but remain
unexercised and of which a further 6,000 options will vest within 60
days hereafter. Alhaji Abudulai is the Vice-President, Ghana Operations
of our Company.
(11) Anacort Capital Inc. is a private investment company based in Calgary,
Alberta, Canada. John Halliwell, President of Anacort Capital Inc.,
makes decisions as to the voting and disposition of the securities.
(12) Bank Julius Baer & Co. Ltd., is a private foreign investment company
based in Zurich, Switzerland. U. Mettler, Vice President of Bank Julius
Baer & Co. Ltd., makes decisions as to the voting and disposition of
the securities.
(13) Consists of 30,000 shares and 15,000 shares of common stock underlying
warrants that are currently exercisable.
(14) Consists of 30,000 shares and 15,000 shares of common stock underlying
warrants that are currently exercisable.
(15) Consists of 277,500 shares and 500,000 shares of common stock
underlying a debenture, the outstanding principal of which is
convertible into shares. Bradam Financial Holdings Ltd. is a private
foreign investment company based in Castries, St. Lucia, Caribbean.
Mikkel Lind, Managing Director of the Selling Security Holder, makes
decisions as to the voting and disposition of the securities.
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(16) Brulene Inc. is an Ontario, Canada private company based in Kitchener,
Ontario. Bruce Richmond, President of Brulene Inc., makes decisions as
to the voting and disposition of the securities.
(17) Consists of 10,000 shares and 5,000 shares of common stock underlying
warrants that are currently exercisable.
(18) Consists of 50,000 shares and 25,000 shares of common stock underlying
warrants that are currently exercisable.
(19) Consists of 324,000 shares underlying options which will vest monthly
as to 9,000 options over a three year period, of which 81,000 options
have vested as of the date of this Prospectus but remain unexercised
and of which a further 18,000 options will vest within 60 days
hereafter. Yves Clement is the Vice-President, Exploration of our
Company.
(20) Consists of 120,000 shares and 35,000 shares of common stock underlying
warrants that are currently exercisable.
(21) Consists of 60,000 shares, 30,000 shares underlying warrants that are
currently exercisable and 150,000 shares of common stock underlying a
debenture, the outstanding principal of which is convertible into
shares. CMK Financial Holdings Ltd. is a private foreign investment
company based in Castries, St. Lucia, Caribbean. Mikkel Lind, Managing
Director of the Selling Security Holder, makes decisions as to the
voting and disposition of the securities.
(22) Court Global SA is a private foreign company based in Tortola, British
Virgin Islands. Marc Angst, Managing Director of the Selling Security
Holder, makes decisions as to the voting and disposition of the
securities.
(23) Daniel Earle is a former Officer and Director of our Company.
(24) Consists of 250,000 shares of common stock underlying a debenture, the
outstanding principal of which is convertible into shares. Alpine
Everest Asset Management SA is a private foreign investment company
based in Zurich, Switzerland. Erwin Speckert, the Managing Director of
Everest Asset Management SA makes decisions as to the voting and
disposition of the securities.
(25) Consists of 10,000 shares and 5,000 shares of common stock underlying
warrants that are currently exercisable.
(26) E.C. McFeely exercises voting and dispositive power over all of the
shares beneficially owned by Haywood Securities Inc. in trust for E.C.
McFeely.
(27) Frederick Kozak exercises voting control and dispositive power over all
of the shares beneficially owned by Haywood Securities Inc. in trust
for Frederick Kozak .
(28) Consists of 100,000 shares and 50,000 shares underlying warrants that
are currently exercisable.
(29) Interloan AG is a private foreign investment company based in Zurich,
Switzerland. Ferdinand Meyer, Managing Director of the Selling Security
Holder, makes decisions as to the voting and disposition of the
securities.
(30) Consists of 20,000 shares and 10,000 shares underlying warrants that
are currently exercisable.
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(31) Kander Financial Corp. is a private Ontario, Canada investment company
based in Toronto, Ontario. Derek Riley, President of the Selling
Security Holder, makes decisions as to the voting and disposition of
the securities.
(32) Consists of 30,000 shares and 15,000 shares of common stock underlying
warrants that are currently exercisable.
(33) Consists of 300,000 shares underlying options which will vest monthly
as to 6,250 options over a four year period and an aggregate of 416,000
shares underlying options which will vest monthly as to an aggregate of
11,555 over a three year period of which 206,080 options have vested as
of the date of this Prospectus but remain unexercised and of which a
further 35,610 options will vest within 60 days hereafter. William
Edward McKechnie is the Chairman, Chief Executive Officer, Chief
Financial Officer and a Director of our Company.
(34) Consists of 16,000 shares and 8,000 shares of common stock underlying
warrants that are currently exercisable.
(35) Merlin Asset Holdings SA is a private foreign investment company based
in Tortola, British Virgin Islands. Marc Angst, Managing Director of
the Selling Security Holder, makes decisions as to the voting and
disposition of the securities.
(36) Consists of 200,000 shares underlying options which will vest pursuant
to the achievement of two milestones, none of which has occurred as of
the date of this Prospectus.
(37) Consists of 108,000 shares underlying options which will vest monthly
as to 3,000 options over a three year period, of which 27,000 options
have vested as of the date of this Prospectus but remain unexercised
and of which a further 6,000 options will vest within 60 days
hereafter. Rebecca Kiomi Mori is the Secretary and Treasurer and a
Director of our Company.
(38) Consists of 10,000 shares and 5,000 shares of common stock underlying
warrants that are currently exercisable.
(39) Consists of 20,000 shares and 10,000 shares of common stock underlying
warrants that are currently exercisable.
(40) Consists of 292,930 shares and 55,556 shares of common stock underlying
warrants that are currently exercisable.
(41) Nube Administration Inc. is a private foreign company based in Tortola,
British Virgin Islands. Michele Sacco, Managing Director of the Selling
Security Holder, makes decisions as to the voting and disposition of
the securities.
(42) Pipeline Displays and Fixtures Inc. is a private Ontario, Canada
company based in Toronto, Ontario. Ian Wookey, President of the Selling
Security Holder, makes decisions as to the voting and disposition of
the securities.
(43) Piper Foundation is a private foreign company based in Vaduz,
Liechtenstein. Erwin Speckert, Managing Director of the Selling
Security Holder, makes decisions as to the voting and disposition of
the securities.
(44) Sprott Asset Management exercises voting and dispositive power over all
of the shares beneficially owned by Royal Trust Corp. of Canada in
trust for the for Sprott Asset Management. Eric Sprott, Chief Executive
Officer of Sprott Asset Management, makes decisions as to the voting
and disposition of the securities.
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(45) Consists of 150,000 shares and 25,000 shares of common stock underlying
warrants that are currently exercisable.
(46) Consists of 32,000 shares and 16,000 shares of common stock underlying
warrants that are currently exercisable.
(47) Sorrel Global Investments is a private foreign investment company based
in Tortola, British Virgin Islands. Erwin Speckert, Managing Director
of the Selling Security Holder, makes decisions as to the voting and
disposition of the securities.
(48) Subaraschi Foundation is a private foreign company based in Vaduz,
Liechtenstein. Ferdinand Meyer, Managing Director of the Selling
Security Holder, makes decisions as to the voting and disposition of
the securities.
(49) Sufran Investments Ltd. is a private foreign investment company based
in Geneva, Switzerland. P.A. Gordon, President of the Selling Security
Holder, makes decisions as to the voting and disposition of the
securities.
(50) Consists of 261,029 shares and 55,500 shares of common stock underlying
warrants that are currently exercisable.
(51) Consists of 204,000 shares and 30,000 shares of common stock underlying
warrants that are currently exercisable. Thousand Hills Properties Inc.
is a private company based in Massapeqa, New York. Vincent DeLetto,
President of the Selling Security Holder, makes decisions as to the
voting and disposition of the securities.
(52) Consists of 200,000 shares and 50,000 shares of common stock underlying
warrants that are currently exercisable.
(53) Consists of 22,000 shares and 11,000 shares of common stock underlying
warrants that are currently exercisable.
None of the above Selling Security Holders are affiliates of United
States brokers-dealers, nor at the time of purchase did any of them have any
agreements or understandings, directly or indirectly, with any persons to
distribute the securities.
PLAN OF DISTRIBUTION
Offering Price
The selling security Holders may offer and sell their shares at $_____
per share until our shares are quoted in the over-the-counter market or on a
national securities exchange and thereafter at prevailing market prices or
privately negotiated prices. This initial offering price of $____ per share was
arrived at based upon our private placement in _______in which we sold shares of
our common stock at $_____ per share. Our common stock is presently traded on
the Pink Sheets which is not considered an exchange for purposes of selling at
other than the fixed price of $__. Following such time as our shares of common
stock are quoted in the over-the-counter market or on a national securities
exchange the Selling Security Holders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions.
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Manner of Sales
These sales may be at fixed or negotiated prices. The Selling Security
Holders may use any one or more of the following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o settlement of short sales entered into after the date of this
Prospectus;
o broker-dealers may agree with the Selling Security Holders to
sell a specified number of such shares at a stipulated price per
share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The Selling Security Holders may also sell shares under Rule 144 under
the Securities Act of 1933, if available, rather than under this Prospectus.
Broker-dealers engaged by the Selling Security Holders may arrange for
other broker-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the Selling Security Holders (or, if any
broker-dealer acts as agent for the purchaser of shares, from the purchaser) in
amounts to be negotiated. The Selling Security Holders do not expect these
commissions and discounts to exceed what is customary in the types of
transactions involved. Broker-dealers may agree to sell a specified number of
such shares at a stipulated price per share, and, to the extent such
broker-dealer is unable to do so acting as agent for us or a selling
stockholder, to purchase as principal any unsold shares at the price required to
fulfill the broker-dealer commitment. Broker-dealers who acquire shares as
principal may thereafter resell such shares from time to time in transactions,
which may involve block transactions and sales to and through other
broker-dealers, including transactions of the nature described above, in the
over-the-counter markets or otherwise at prices and on terms then prevailing at
the time of sale, at prices then related to the then-current market price or in
negotiated transactions. In connection with such resales, broker-dealers may pay
to or receive from the purchasers of such shares, commissions as described
above. In the event that shares are resold to any broker-dealer, as principal,
who is acting as an underwriter, we will file a post-effective amendment to the
registration statement of which this Prospectus forms a part, identifying the
broker-dealer(s), providing required information relating to the plan of
distribution and filing any agreement(s) with such broker-dealer(s) as an
exhibit. The involvement of a broker-dealer as an underwriter in the offering
will require prior clearance of the terms of underwriting compensation and
arrangements from the Corporate Finance Department of the National Association
of Securities Dealers, Inc.
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The Selling Security Holders may, from time to time, pledge or grant a
security interest in some or all of the shares or common stock or warrants owned
by them and, if they default in the performance of their secured obligations,
the pledgees or secured parties may offer and sell the shares of common stock,
from time to time, under this Prospectus, or under an amendment to this
Prospectus under Rule 424 (b)(3) or other applicable provision of the Securities
Act of 1933 amending the list of Selling Security Holders to include the
pledgee, transferee or other successors-in-interest as selling security holders
under this Prospectus.
The Selling Security Holders also may transfer the shares of common
stock in other circumstances, in which case the transferees, pledgees or other
successors-in-interest will be the selling beneficial owners for purposes of
this Prospectus.
The Selling Security Holders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933 in connection with such sales. In such
event, any commissions received by such broker-dealers or agents and any profit
on the resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act of 1933. The Selling Security
Holders have informed us that they do not have any agreement or understanding,
directly or indirectly, with any person to distribute the common stock.
Regulation M
The Selling Security Holders must comply with the requirements of the
Securities Act and the Exchange Act in the offer and sale of the common stock.
In particular, we will advise the selling stockholders that the
anti-manipulation rules of Regulation M under the Exchange Act may apply to
sales of shares in the market and to the activities of the Selling Security
Holders and their affiliates. Regulation M under the Exchange Act prohibits,
with certain exceptions, participants in a distribution from bidding for, or
purchasing for an account in which the participant has a beneficial interest,
any of the securities that are the subject of the distribution.
Accordingly, during such times as a Selling Security Holders may be
deemed to be engaged in a distribution of the common stock, and therefore be
considered to be an underwriter, the Selling Security Holders must comply with
applicable law and, among other things:
1. may not engage in any stabilization activities in connection with our
common stock;
2. may not cover short sales by purchasing shares while the distribution
is taking place; and
3. may not bid for or purchase any of our securities or attempt to induce
any person to purchase any of our securities other than as permitted
under the Exchange Act.
In addition, we will make copies of this prospectus available to the Selling
Security Holders for the purpose of satisfying the prospectus delivery
requirements of the Securities Act.
Expenses of Registration
We are bearing all costs relating to the registration of the common stock. The
Selling Security Holders, however, will pay any commissions or other fees
payable to brokers or dealers in connection with any sale of the common stock.
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SHARES ELIGIBLE FOR FUTURE SALE
As of the date of this Prospectus, we had 28,088,157 shares of common
stock issued and outstanding. Of the issued and outstanding shares,
approximately 25,324,407 shares of our common stock (4,114,526 of which are
owned by our officers, directors and principal stockholders) have been held for
in excess of one year and are available for public resale pursuant to Rule 144
promulgated under the Securities Act. As of the date of this Prospectus, the
5,265,322 shares registered under a registration statement of which this
Prospectus forms a part, and being offered by Selling Security Holders can be
publicly transferred. Not included in the foregoing are (i) 1,456,000 shares
issuable upon exercise of options that have been granted (of which an aggregate
of 253,750 options have vested but have not been exercised); (ii) 996,056 shares
issuable on exercise of outstanding warrants; (iii) 900,000 shares issuable upon
conversion of convertible debentures; and (iv) 15,750 shares issuable upon
conversion of the Accrued Interest. They may be resold by their holders as long
as they are covered by a current registration statement or under an available
exemption from registration.
In general, Rule 144 permits a shareholder who has owned restricted
shares for at least one year, to sell without registration, within a three-month
period, up to one percent of our then outstanding common stock. We must be
current in our reporting obligations in order for a stockholder to sell shares
under Rule 144. In addition, stockholders other than our officers, directors or
10% or greater stockholders who have owned their shares for at least two years
may sell them without volume limitation or the need for our reports to be
current.
We cannot predict the effect, if any, that market sales of common stock
or the availability of these shares for sale will have on the market price of
the shares from time to time. Nevertheless, the possibility that substantial
amounts of common stock may be sold in the public market could adversely affect
market prices for the common stock and could damage our ability to raise capital
through the sale of our equity securities.
LEGAL MATTERS
The validity of the securities offered by this Prospectus is being
reviewed upon for us by Schneider Weinberger & Beilly LLP, Boca Raton, Florida.
EXPERTS
The consolidated financial statements of Xtra-Gold Resources Corp. as
of December 31, 2005 and 2004, respectively, and for each of the two years then
ended appearing in this Prospectus have been audited by Davidson & Company LLP,
Independent Registered Public Accounting Firm, as set forth in their report
thereon appearing elsewhere in this Prospectus, and are included in reliance
upon this report given on the authority of such firm as experts in auditing and
accounting.
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ADDITIONAL INFORMATION
We have filed with the SEC the Registration Statement on Form SB-2
under the Securities Act for the common stock offered by the Selling Security
Holders by this Prospectus. This Prospectus, which is a part of the Registration
Statement, does not contain all of the information in the Registration Statement
and the exhibits filed with it, portions of which have been omitted as permitted
by SEC rules and regulations. For further information concerning us and the
securities offered by the Selling Security Holders by this Prospectus, we refer
to the Registration Statement and to the exhibits filed with it. Statements
contained in this Prospectus as to the content of any contract or other document
referred to are not necessarily complete. In each instance, we refer you to the
copy of the contracts and/or other documents filed as exhibits to the
Registration Statement, and these statements are qualified in their entirety by
reference to the contract or document.
The Registration Statement, including all exhibits, and other materials
we file with the SEC, may be inspected without charge, and copies of these
materials may also be obtained upon the payment of prescribed fees, at the SEC's
Public Reference Room at:
100 F Street, N.E.
Room 1580
Washington, D.C. 20549
You may obtain information on the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330.
The Registration Statement, including all exhibits and schedules and
amendments, has been filed with the SEC through the Electronic Data Gathering,
Analysis and Retrieval (EDGAR) system. We do not currently file periodic reports
with the SEC; however, following the effective date of the registration
statement relating to this Prospectus, we will become a reporting company and
will file annual, quarterly and current reports, and other information with the
SEC. Copies of all of our filings with the SEC may be viewed on the SEC's
Internet web site at http://www.sec.gov. We maintain a website at
www.xtragold.com. The information on our website does not form a part of this
Prospectus.
For so long as we are a reporting company, we will be required to file
annual reports with the SEC, containing audited financial statements. However,
unless we register our common stock under Section 12(g) of the Exchange Act, we
will not be required to deliver an annual report containing audited financial
statements to security holders. We currently have no plans to register our
common stock under Section 12(g) of the Exchange Act. If we are not required to
deliver an annual report to security holders, we do not intend to voluntarily
deliver annual reports to security holders containing audited financial
statements.
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XTRA-GOLD RESOURCES CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS)
(UNAUDITED)
SEPTEMBER 30, 2006
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. Dollars)
(unaudited)
=================================================================================================
September 30, 2006 December 31, 2005
-------------------------------------------------------------------------------------------------
ASSETS
CURRENT
Cash and cash equivalents ........................... $ 760,696 $ 458,376
Investment in trading securities, at fair value
(cost of $2,742,761) (Note 5) ..................... 2,697,092 2,647,207
Receivables and other ............................... 56,084 32,667
------------- -------------
TOTAL CURRENT ASSETS ................................ 3,513,872 3,138,250
EQUIPMENT (Note 6) ..................................... 69,678 6,963
DEFERRED FINANCING COSTS (Note 7) ...................... 34,652 41,582
OIL AND GAS PROPERTY (Note 8) .......................... 210,137 46,538
MINERAL PROPERTIES (Note 9) ............................ 8,523,971 8,523,971
------------- -------------
TOTAL ASSETS ........................................... $ 12,352,310 $ 11,757,304
=================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities ............ $ 87,354 $ 305,825
Due to related party ................................ - 86,499
------------- -------------
TOTAL CURRENT LIABILITIES .............................. 87,354 392,324
CONVERTIBLE DEBENTURES (Note 10) ....................... 900,000 900,000
ASSET RETIREMENT OBLIGATION (Note 11) .................. 47,140 43,833
------------- -------------
TOTAL LIABILITIES ................................... 1,034,494 1,336,157
------------- -------------
STOCKHOLDERS' EQUITY
Capital stock (Note 12)
Authorized
250,000,000 common shares with a par value of $0.001
Issued and outstanding
27,806,157 common shares (December 31, 2005 -
24,937,407 common shares) ........................ 27,806 24,938
Additional paid in capital .......................... 14,767,552 12,497,778
Deficit ............................................. (1,427,764) (1,427,764)
Deficit accumulated during the development stage .... (2,049,778) (673,805)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY .......................... 11,317,816 10,421,147
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............. $ 12,352,310 $ 11,757,304
=================================================================================================
HISTORY AND ORGANIZATION OF THE COMPANY (Note 1)
CONTINGENCY AND COMMITMENTS (Note 17)
SUBSEQUENT EVENTS (Note 18)
The accompanying notes are an integral part of these consolidated financial statements.
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in U.S. Dollars)
(unaudited)
=============================================================================================================================
Cumulative
amounts from the
beginning of the
development stage Three Months Three Months Nine Months Nine Months
on January 1, 2003 Ended Ended Ended Ended
to September 30, September 30, September 30, September 30, September 30,
2006 2006 2005 2006 2005
-----------------------------------------------------------------------------------------------------------------------------
EXPENSES
Amortization ......................... $ 9,693 $ 2,924 $ 791 $ 8,639 $ 791
Exploration .......................... 1,323,797 206,716 94,050 536,633 186,227
General and administrative ........... 1,312,896 267,655 115,958 678,195 208,836
Write-off of mineral property (Note 4) 26,000 - - - -
------------- ----------- ----------- ------------ -----------
LOSS BEFORE OTHER ITEMS ................. (2,672,386) (477,295) (210,799) (1,223,467) (395,854)
------------- ----------- ----------- ------------ -----------
OTHER ITEMS
Foreign exchange gain ................ 247,801 22,568 108,504 110,437 75,285
Interest expense ..................... (97,595) (19,156) (20,938) (57,506) (20,938)
Realized gains (losses) on sales of
trading securities ................. 288,263 672 78,575 126,798 150,932
Net unrealized gain(loss) on trading
securities ......................... (72,359) (199,883) 334,811 (462,269) 327,680
Other income ......................... 259,533 52,296 33,258 131,981 60,698
Loss on disposal of equipment ........ (3,035) - - (1,947) -
------------- ----------- ----------- ------------ -----------
622,608 (143,503) 534,210 (152,506) 593,657
------------- ----------- ----------- ------------ -----------
INCOME (LOSS) FOR THE PERIOD ............ $ (2,049,778) $ (620,798) $ 323,411 $ (1,375,973) $ 197,803
=============================================================================================================================
BASIC INCOME (LOSS) PER COMMON SHARE .... $ (0.02) $ 0.01 $ (0.05) $ 0.00
=============================================================================================================================
DILUTED INCOME (LOSS) PER COMMON SHARE .. $ (0.02) $ 0.01 $ (0.05) $ 0.00
=============================================================================================================================
BASIC WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING ...................... 27,621,592 23,170,403 26,320,756 46,048,227
=============================================================================================================================
DILUTED WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING ............... 27,621,592 23,735,519 26,320,756 46,138,612
=============================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. Dollars)
(unaudited)
=========================================================================================================================
Cumulative amounts
from the beginning
of the development
stage on
January 1, 2003 to Nine Months Ended Nine Months Ended
September 30, 2006 September 30, 2006 September 30, 2005
-------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Income (loss) for the period ....................... $ (2,049,778) $ (1,375,973) $ 197,803
Items not affecting cash:
Amortization .................................... 9,693 8,639 791
Amortization of deferred financing costs ........ 11,550 6,930 2,310
Accretion of asset retirement obligation ........ 7,275 3,307 2,976
Shares issued for services ...................... 5,500 - 5,500
Stock-based compensation ........................ 172,669 131,647 20,511
Unrealized foreign exchange (gain) loss ......... (273,331) (121,876) (74,523)
Realized gains on sale of trading securities .... (288,263) (126,798) (150,932)
Purchase of trading securities .................. (7,172,957) (2,382,187) (3,163,483)
Proceeds on sale of trading securities .......... 4,965,100 2,118,707 2,163,613
Unrealized (gain) loss on trading securities .... 72,359 462,269 (327,680)
Loss on disposal of equipment ................... 3,035 1,947 -
Write-off of mineral property ................... 26,000 - -
Expenses paid by stockholders ................... 2,700 - -
Changes in non-cash working capital items:
Increase in receivables and other ............... (47,709) (23,417) (3,901)
Increase (decrease) in accounts payable and
accrued liabilities .......................... 76,662 (171,933) (37,492)
Increase (decrease) in due to related party ..... 50,000 (36,499) -
------------ ------------ -----------
Net cash used in operating activities .............. (4,429,495) (1,505,237) (1,364,507)
------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of convertible
debentures ...................................... 900,000 - 900,000
Deferred financing costs ........................... (46,202) - (46,202)
Repurchase of capital stock ........................ (7,000) (7,000) -
Subscriptions received in advance .................. - - 55,000
Issuance of capital stock, net of financing costs .. 4,648,338 2,097,995 414,420
------------ ------------ -----------
Net cash provided by financing activities .......... 5,495,136 2,090,995 1,323,218
------------ ------------ -----------
- continued -
The accompanying notes are an integral part of these consolidated financial statements.
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. Dollars)
(unaudited)
=========================================================================================================================
Cumulative amounts
from the beginning
of the development
stage on
January 1, 2003 to Nine Months Ended Nine Months Ended
September 30, 2006 September 30, 2006 September 30, 2005
-------------------------------------------------------------------------------------------------------------------------
Continued...
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment .......................... (81,318) (73,301) (8,017)
Oil and gas property expenditures ................. (210,137) (210,137) -
Acquisition of cash on purchase of subsidiary ..... 11,510 - -
Acquisition of subsidiary ......................... (25,000) - -
--------- ---------- ---------
Net cash used in investing activities ............. (304,945) (283,438) (8,017)
--------- ---------- ---------
CHANGE IN CASH AND CASH EQUIVALENTS DURING THE
PERIOD .............................................. 760,696 302,320 (49,306)
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD .... - 458,376 231,480
--------- ---------- ---------
CASH AND CASH EQUIVALENTS, END OF THE PERIOD .......... $ 760,696 $ 760,696 $ 182,174
=========================================================================================================================
SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS (Note 14)
The accompanying notes are an integral part of these consolidated financial statements.
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Expressed in U.S. Dollars)
(unaudited)
==============================================================================================================================
Common Stock Deficit
-------------------------- Accumulated
During the
Number Additional Development
of Shares Amount Paid-in Capital Deficit Stage Total
------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2002 ....... 12,364,085 $ 12,364 $ 1,412,842 $ (1,427,764) $ - $ (2,558)
Paid on behalf of the Company .... - - 5,258 - - 5,258
October 31, 2003, issuance of
stock for acquisition of
subsidiary ....................... 50,350,000 50,350 (50,350) - - -
Loss for the year ................ - - - - (2,700) (2,700)
----------- ------------ --------------- ------------ ------------ ------------
BALANCE, DECEMBER 31, 2003 ....... 62,714,085 62,714 1,367,750 (1,427,764) (2,700) -
March, 2004 - private placement
at $0.35 per share ............... 2,000,000 2,000 698,000 - - 700,000
May, 2004 - private placement at
$0.35 per share .................. 2,129,400 2,129 743,161 - - 745,290
December, 2004 - acquisition of
subsidiary via issuance of
common stock ..................... 2,698,350 2,699 8,492,688 - - 8,495,387
Share issuance costs ............. - - (76,298) - - (76,298)
Loss for the year ................ - - - - (398,533) (398,533)
----------- ------------ --------------- ------------ ------------ ------------
BALANCE, DECEMBER 31, 2004 ....... 69,541,835 69,542 11,225,301 (1,427,764) (401,233) 9,465,846
May, 2005 - cancellation of
shares ........................... (47,000,000) (47,000) 47,000 - - -
June, 2005 - for services ........ 10,000 10 5,490 - - 5,500
June, 2005 - private placement
at $0.55 per share ............... 536,218 536 294,384 - - 294,920
August, 2005 - private placement
at $0.55 per share ............... 300,000 300 164,700 - - 165,000
November, 2005 - private
placement at $0.55 per share ..... 1,549,354 1,550 850,595 - - 852,145
Share issuance costs ............. - - (130,714) - - (130,714)
Stock-based compensation ......... - - 41,022 - - 41,022
Loss for the year ................ - - - - (272,572) (272,572)
----------- ------------ --------------- ------------ ------------ ------------
BALANCE, DECEMBER 31, 2005 ....... 24,937,407 24,938 12,497,778 (1,427,764) (673,805) 10,421,147
- continued -
The accompanying notes are an integral part of these consolidated financial statements.
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Expressed in U.S. Dollars)
(unaudited)
==============================================================================================================================
Common Stock Deficit
-------------------------- Accumulated
During the
Number Additional Development
of Shares Amount Paid-in Capital Deficit Stage Total
------------------------------------------------------------------------------------------------------------------------------
continued ...
BALANCE, DECEMBER 31, 2005 ....... 24,937,407 24,938 12,497,778 (1,427,764) (673,805) 10,421,147
February, 2006 - conversion of
promissory note at $0.55 per share 90,909 91 49,909 - - 50,000
March, 2006 - exercise of
warrants at $0.75 per share ...... 108,500 108 81,267 - - 81,375
March, 2006 - private placement
at $0.70 per share ............... 792,029 792 553,628 - - 554,420
April, 2006 - exercise of
warrants at $0.75 per share ...... 177,200 177 132,723 - - 132,900
June, 2006 - cancellation of
shares ........................... (10,000) (10) (6,990) - - (7,000)
June, 2006 - private placement at
$0.90 per share .................. 578,112 578 519,722 - - 520,300
July, 2006 - private placement at
$0.90 per share .................. 1,132,000 1,132 1,017,668 - - 1,018,800
Share issuance costs ............. - - (209,800) - - (209,800)
Stock-based compensation ......... - - 131,647 - - 131,647
Loss for the period .............. - - - - (1,375,973) (1,375,973)
----------- ------------ --------------- ------------ ------------ ------------
BALANCE, SEPTEMBER 30, 2006 ...... 27,806,157 $ 27,806 $ 14,767,552 $ (1,427,764) $ (2,049,778) $ 11,317,816
==============================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
(unaudited)
SEPTEMBER 30, 2006
================================================================================
1. HISTORY AND ORGANIZATION OF THE COMPANY
Silverwing Systems Corporation (the "Company"), a Nevada corporation,
was incorporated on September 1, 1998. On June 23, 1999, the Company
completed the acquisition of Advertain On-Line Canada Inc. ("Advertain
Canada"), a Canadian company operating in Vancouver, British Columbia,
Canada. The Company changed its name to Advertain On-Line Inc.
("Advertain") on August 19, 1999. Advertain Canada's business was the
operation of a web site, "Advertain.com", whose primary purpose was to
distribute entertainment advertising on the Internet.
In May 2001, the Company, being unable to continue its funding of
Advertain Canada's operations, decided to abandon its interest in
Advertain Canada. On June 15, 2001, the Company sold its investment in
Advertain Canada back to Advertain Canada's original shareholder. On
June 18, 2001, the Company changed its name from Advertain to
RetinaPharma International, Inc. ("RetinaPharma") and became inactive.
In 2003, the Company became a resource exploration and development
company. On October 31, 2003, the Company acquired 100% of the issued
and outstanding common stock of Xtra-Gold Resources, Inc.("XGRI"). XGRI
was incorporated in Florida on October 24, 2003. On December 19, 2003,
the Company changed its name from RetinaPharma to Xtra-Gold Resources
Corp.
In 2004, the Company acquired 100% of the issued and outstanding
capital stock of Canadiana Gold Resources Limited ("Canadiana") and 90%
of the issued and outstanding capital stock of Goldenrae Mining Company
Limited ("Goldenrae") (Note 4). Both companies are incorporated in
Ghana and the remaining 10% of the issued and outstanding capital stock
of Goldenrae is held by the Government of Ghana.
On October 20, 2005, XGRI changed its name to Xtra Energy Corp. ("Xtra
Energy").
On October 20, 2005, the Company incorporated Xtra Oil & Gas Ltd.
("XOG") in Alberta, Canada.
On December 21, 2005, Canadiana changed its name to Xtra-Gold
Exploration Limited ("XG Exploration").
On January 13, 2006, Goldenrae changed its name to Xtra-Gold Mining
Limited ("XG Mining").
On March 2, 2006, the Company incorporated Xtra Oil & Gas (Ghana)
Limited ("XOGG") in Ghana.
2. GOING CONCERN
The Company is in the development stage with respect to its resource
properties, incurred a loss of $1,375,973 for the nine months ended
September 30, 2006 and has accumulated a deficit during the development
stage of $2,049,778. This raises substantial doubt about its ability to
continue as a going concern. The ability of the Company to continue as
a going concern is dependent on the Company's ability to raise
additional capital and implement its business plan. The financial
statements do not include any adjustments that might be necessary if
the Company is unable to continue as a going concern.
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
(unaudited)
SEPTEMBER 30, 2006
================================================================================
2. GOING CONCERN (cont'd...)
Management of the Company ("Management") is of the opinion that
sufficient financing will be obtained from external financing and
further share issuances to meet the Company's obligations. At September
30, 2006, the Company has working capital of $3,426,518 and subsequent
to September 30, 2006 raised an additional $310,200 pursuant to a
private placement and $314,258 pursuant to the sale of its oil and gas
property (Note 18).
3. SIGNIFICANT ACCOUNTING POLICIES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
These consolidated financial statements have been prepared in
conformity with generally accepted accounting principles of the United
States of America ("US GAAP").
PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the accounts of the
Company, its wholly owned subsidiaries, Xtra Energy (from October 24,
2003), XG Exploration (from February 16, 2004), XOG (from October 20,
2005) and XOGG (from March 2, 2006) and its 90% owned subsidiary, XG
Mining (from December 22, 2004). All significant intercompany accounts
and transactions have been eliminated on consolidation.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
US GAAP requires Management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments with original
maturities of three months or less to be cash equivalents. At September
30, 2006 and December 31, 2005, cash and cash equivalents consisted of
cash held at financial institutions.
RECEIVABLES
No allowance for doubtful accounts has been provided. Management has
evaluated all receivables and believes they are all collectible.
TRADING SECURITIES
The Company's trading securities are reported at fair value, with
unrealized gains and losses included in earnings.
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
(unaudited)
SEPTEMBER 30, 2006
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES (cont'd...)
EQUIPMENT
Equipment is recorded at cost and is being amortized over its estimated
useful lives using the declining balance method at the following annual
rates:
Office furniture and equipment 20%
Computer equipment 30%
Vehicle 30%
DEFERRED FINANCING COSTS
Deferred financing costs consist of expenses incurred to obtain funds
pursuant to the issuance of the convertible debentures and are being
amortized straight-line over the term of the debentures.
OIL AND NATURAL GAS PROPERTIES
The Company follows the full cost method of accounting for oil and
natural gas operations. Under this method, all costs associated with
the acquisition of, exploration for and development of oil and gas
reserves are capitalized in cost centers on a country-by-country basis.
Such costs include property acquisition costs, geological and
geophysical studies, carrying charges on non-producing properties,
costs of drilling productive wells, and overhead expenses directly
related to these activities.
Depletion is calculated for producing properties by using the
unit-of-production method based on estimated proved reserves, before
royalties, as determined by management of the Company or independent
consultants. Sales or dispositions of oil and gas properties are
credited to the respective cost centers and a gain or loss is
recognized when all properties in a cost center have been disposed of,
unless such sale or disposition significantly alters the relationship
between capitalized costs and proved reserves of oil and gas
attributable to the cost center. Costs of abandoned properties are
accounted for as adjustments of capitalized costs and written off to
expense.
Undeveloped properties are excluded from the depletion calculation
until the quantities of proved reserves can be determined.
A ceiling test is applied to the proven properties for each cost center
and for the aggregate of all cost centers by comparing the net
capitalized costs to the estimated future net revenues from production
of estimated proved reserves without discount, plus the costs of
unproved properties net of impairment. Any excess capitalized costs are
written off to expense. Further, the ceiling test for the aggregate of
all cost centers is required to include the effects of future removal
and site restoration costs, general and administrative expenses,
financing costs and income taxes. The calculation of future net
revenues is based upon prices, costs and regulations in effect at each
year end.
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
(unaudited)
SEPTEMBER 30, 2006
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES (cont'd...)
OIL AND NATURAL GAS PROPERTIES (cont'd...)
Unproved properties are assessed for impairment on an annual basis by
applying factors that rely on historical experience. In general, the
Company may write off any unproved property under one or more of the
following conditions:
(a) there are no firm plans for further drilling on the unproved
property;
(b) negative results were obtained from studies of the unproved
properties;
(c) negative results were obtained from studies conducted in the
vicinity of the unproved property; or
(d) the remaining term of the unproved property does not allow
sufficient time for further studies or drilling.
MINERAL PROPERTIES AND EXPLORATION AND DEVELOPMENT COSTS
The costs of acquiring mineral rights are capitalized and allocated
between proven and probable reserves and mineralization not considered
proven and probable reserves at the date of acquisition, based on
relative fair values. If it is later established that some
mineralization meets the definition of proven and probable reserves,
then it will be reclassified as relating to reserves at that time.
After acquisition, various factors can affect the recoverability of the
capitalized costs. If, after review, management concludes that the
carrying amount of a mineral property is impaired, it will be written
down to estimated fair value. Exploration and development costs
incurred on mineral properties classified as mineralization are
expensed as incurred. Development costs incurred on proven and probable
reserves will be capitalized. Upon commencement of production,
capitalized costs will be amortized using the unit-of-production method
over the estimated life of the ore body based on proven and probable
reserves.
LONG-LIVED ASSETS
The Company accounts for long-lived assets under Statements of
Financial Accounting Standards Nos. 142 and 144 "Accounting for
Goodwill and Other Intangible Assets" and "Accounting for Impairment or
Disposal of Long-Lived Assets" ("SFAS 142 and 144"). In accordance with
SFAS 142 and 144, long-lived assets held and used by the Company are
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
For purposes of evaluating the recoverability of long-lived assets, the
recoverability test is performed using undiscounted net cash flows
related to the long-lived assets.
ASSET RETIREMENT OBLIGATIONS
The Company records the fair value of an asset retirement obligation as
a liability in the period in which it incurs a legal obligation
associated with the retirement of tangible long-lived assets that
result from the acquisition, construction, development, and/or normal
use of the long-lived assets. The Company also records a corresponding
asset which is amortized over the life of the asset. Subsequent to the
initial measurement of the asset retirement obligation, the obligation
is adjusted at the end of each period to reflect the passage of time
(accretion expense) and changes in the estimated future cash flows
underlying the obligation (asset retirement cost).
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
(unaudited)
SEPTEMBER 30, 2006
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES (cont'd...)
STOCK-BASED COMPENSATION
The Company calculates the fair value of all stock options granted and
records these amounts as compensation expense over the vesting period
of the options using the straight-line method. The Black-Scholes option
pricing model is used to calculate fair value.
INCOME TAXES
The Company accounts for income taxes under Statements of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). Under SFAS 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under SFAS 109, the effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
LOSS PER SHARE
Basic loss per common share is computed using the weighted average
number of common shares outstanding during the year. To calculate
diluted loss per share, the Company uses the treasury stock method as
defined in Financial Accounting Standards No. 128, "Earnings Per
Share." As of September 30, 2006, there were 855,056 warrants
(September 30, 2005 - 2,482,810); 1,996,000 options (September 30, 2005
- 1,020,000) and convertible debentures exercisable into 900,000 common
shares (September 30, 2005 - 900,000) outstanding.
FOREIGN EXCHANGE
The Company's functional currency is the U.S. dollar. The Company does
not have non-monetary assets and liabilities that are in a currency
other than the U.S. dollar. Any monetary assets and liabilities that
are in a currency other than the U.S. dollar are translated at the rate
prevailing at year end. Revenue and expenses in a foreign currency are
translated at rates that approximate those in effect at the time of
translation. Gains and losses from translation of foreign currency
transactions into U.S. dollars are included in current results of
operations.
FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash
equivalents, trading securities, receivables, accounts payable and
accrued liabilities and convertible debentures. It is management's
opinion that the Company is not exposed to significant interest,
currency or credit risks arising from its financial instruments. The
fair values of these financial instruments approximate their carrying
values due to their short term nature, unless otherwise noted. The
Company has its cash primarily in one commercial bank in Toronto,
Ontario, Canada.
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
(unaudited)
SEPTEMBER 30, 2006
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES (cont'd...)
CONCENTRATION OF CREDIT RISK
The financial instrument which potentially subjects the Company to
concentration of credit risk is cash. The Company maintains cash in
bank accounts that, at times, may exceed federally insured limits. As
of September 30, 2006, the Company has exceeded the federally insured
limit. The Company has not experienced any losses in such accounts and
believes it is not exposed to any significant risks on its cash in bank
accounts.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 153, "Exchanges of Non
monetary Assets - an amendment of APB Opinion No. 29" ("SFAS 153")
which amends Accounting Principles Board Opinion No. 29, "Accounting
for Non Monetary Transactions" to eliminate the exception for non
monetary exchanges of similar productive assets and replaces it with a
general exception for exchanges of non monetary assets that do not have
commercial substance. A non monetary exchange has commercial substance
if the future cash flows of the entity are expected to change
significantly as a result of the exchange. SFAS 153 is effective for
non monetary asset exchanges occurring in fiscal periods beginning
after June 15, 2005.
In December 2004, FASB issued Statements of Financial Accounting
Standards No. 123R, "Share Based Payment" ("SFAS 123R"). SFAS 123R
supersedes APB 25 and its related implementation guidance by requiring
entities to recognize the cost of employee services received in
exchange for awards of equity instruments based on the grant-date fair
value of those awards (with limited exceptions) and revises SFAS 123 as
follows:
(i) Public entities are required to measure liabilities incurred
to employees in share-based payment transactions at fair value and
nonpublic entities may elect to measure their liabilities to employees
incurred in share-based payment transactions at their intrinsic value
whereas under SFAS 123, all share-based payment liabilities were
measured at their intrinsic value.
(ii) Nonpublic entities are required to calculate fair value using
an appropriate industry sector index for the expected volatility of its
share price if it is not practicable to estimate the expected
volatility of the entity's share price.
(iii) Entities are required to estimate the number of instruments
for which the requisite service is expected to be rendered as opposed
to accounting for forfeitures as they occur.
(iv) Incremental compensation cost for a modification of the terms
or conditions of an award is measured by comparing the fair value of
the modified award with the fair value of the award immediately before
the modification whereas SFAS 123 required that the effects of a
modification be measured as the difference between the fair value of
the modified award at the date it is granted and the award's value
immediately before the modification determined based on the shorter of
(1) its remaining initially estimated expected life or (2) the expected
life of the modified award.
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
(unaudited)
SEPTEMBER 30, 2006
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES (cont'd...)
RECENT ACCOUNTING PRONOUNCEMENTS (cont'd...)
SFAS 123R also clarifies and expands guidance in several areas,
including measuring fair value, classifying an award as equity or as a
liability and attributing compensation cost to reporting periods. SFAS
123R does not change the accounting guidance for share-based payment
transactions with parties other than employees provided in SFAS 123 as
originally issued and Emerging Issues Task Force No. 96-18 "Accounting
for Equity Instruments that are Issued to Other Than Employees for
Acquiring or in Conjunction with Selling, Goods and Services" ("EITF
96-18"). SFAS 123R also does not address the accounting for employee
share ownership plans which are subject to Statement of Position 93-6,
"Employers' Accounting for Employee Stock Ownership Plans". Public
entities (other than those filing as small business issuers) will be
required to apply SFAS 123R as of the first annual reporting period
that begins after June 15, 2005. Public entities that file as small
business issuers will be required to apply SFAS 123R in the first
annual reporting period that begins after December 15, 2005. For
nonpublic entities, SFAS 123R must be applied as of the beginning of
the first annual reporting period beginning after December 15, 2005.
In May 2005, FASB issued Statements of Financial Accounting Standards
No. 154, "Accounting Changes and Error Corrections - A Replacement of
APB Opinion No. 20 and FASB Statement No. 3" ("SFAS 154") which is
effective for fiscal years ending after December 15, 2005. SFAS 154
requires that changes in accounting policy be accounted for on a
retroactive basis.
The adoption of these new pronouncements is not expected to have a
material effect on the Company's consolidated financial position or
results of operations.
4. ACQUISITIONS
On February 16, 2004, the Company acquired 100% of the outstanding and
issued capital stock of XG Exploration by paying $25,000 and assuming
$1,000 of liabilities. XG Exploration holds rights to a mineral
prospecting licence on the Banso and Muoso concessions (the "Banso and
Muoso Projects") located in Ghana. The total purchase price of $26,000
was written off to operations because no value was established for
these prospecting rights as the Company does not yet have permits from
the Government of the Republic of Ghana ("Government of Ghana") to
operate on these projects.
On December 22, 2004, the Company acquired 90% of the outstanding and
issued capital stock of XG Mining by issuing 2,698,350 of the Company's
common shares. XG Mining holds mining leases on the Kwabeng and Pameng
concessions (the "Kwabeng and Pameng Projects"), and a mineral
prospecting licence on the Apapam concession (the "Apapam Project"),
all located in Ghana. A feasibility study prepared in 1994, and
subsequently evaluated by the Company, indicates that these concessions
contain placer gold reserves estimated at 216,800 ounces. This was the
primary reason for the acquisition and was the basis for the mineral
property valuation. The cost of the acquisition was based on the fair
value of the net assets acquired.
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
(unaudited)
SEPTEMBER 30, 2006
================================================================================
4. ACQUISITIONS (cont'd...)
The total purchase price of $8,495,387 was allocated as follows:
Cash ................................................ $ 11,510
Receivables ......................................... 8,375
Equipment ........................................... 1,088
Mineral property .................................... 8,484,106
Accounts payable and accrued liabilities ............ (9,692)
-----------
$ 8,495,387
===========
The Government of Ghana owns the remaining 10% of XG Mining's issued
and outstanding capital stock. Pursuant to Ghanaian mining laws and
regulations, the Government of Ghana holds a 10% interest in all mining
leases in Ghana.
Both acquisitions were accounted for using the purchase method with the
net assets of the acquired companies being recorded at fair market
value at the date of acquisition.
5. INVESTMENTS
At September 30, 2006, the Company held investments classified as
trading securities, which consisted of various equity securities. All
trading securities are carried at fair value. As of September 30, 2006,
the fair value of trading securities was $2,697,092 (December 31, 2005
- $2,647,207).
6. EQUIPMENT
====================================================================================================
September 30, 2006 December 31, 2005
-----------------------------------------------------------------------
Accumulated Net Book Accumulated Net Book
Cost Amortization Value Cost Amortization Value
-----------------------------------------------------------------------
Furniture and equipment .. $ 20,624 $ 1,981 $ 18,643 $ 2,964 $ 296 $ 2,668
Computer equipment ....... 8,623 1,495 7,128 5,053 758 4,295
Vehicle .................. 49,472 5,565 43,907 - - -
-----------------------------------------------------------------------
$ 78,719 $ 9,041 $ 69,678 $ 8,017 $ 1,054 $ 6,963
====================================================================================================
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
(unaudited)
SEPTEMBER 30, 2006
================================================================================
7. DEFERRED FINANCING COSTS
=======================================================================
September 30, 2006 December 31, 2005
-----------------------------------------------------------------------
Balance, beginning of period .. $ 41,582 $ -
Costs incurred ................ - 46,202
Amortization .................. 6,930 4,620
-----------------------------------------------------------------------
Balance, end of period ........ $ 34,652 $ 41,582
=======================================================================
During the year ended December 31, 2005, the Company paid a finder's
fee of $45,000 and other expenses of $1,202 relating to a convertible
debenture financing (Note 10).
8. OIL AND GAS PROPERTY
During the year ended December 31, 2005, the Company entered into a
participation agreement for a 5% participating interest in certain oil
and gas leases in Saskatchewan, Canada ("Saskatchewan Project"). To
earn its interest, the Company was required to pay Ranger Canyon Energy
Inc. $13,925 and to pay its proportionate share of seismic and drilling
expenditures incurred. The Company's share of a drilling program
undertaken in 2005 was $32,613 and for the nine months ended September
30, 2006 it was $163,599. Subsequent to September 30, 2006, the Company
sold its interest to an unrelated oil and gas company for $314,258.
9. MINERAL PROPERTIES
=======================================================================
September 30, 2006 December 31, 2005
-----------------------------------------------------------------------
Acquisition costs (Note 4) .... $ 8,484,106 $ 8,484,106
Asset retirement obligation
(Note 11) .................. 39,865 39,865
-----------------------------------------------------------------------
Total ......................... $ 8,523,971 $ 8,523,971
=======================================================================
KWABENG AND PAMENG PROJECTS
The Company holds two mining leases in Ghana. These mining leases grant
the Company surface and mining rights to produce gold in the leased
areas until July 26, 2019. All gold production will be subject to a 3%
production royalty of the net smelter returns ("NSR").
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
(unaudited)
SEPTEMBER 30, 2006
================================================================================
9. MINERAL PROPERTIES (cont'd...)
APAPAM, BANSO AND MUOSO PROJECTS
The Company holds prospecting licences on its Apapam, Banso and Muoso
Projects in Ghana. These licences grant the Company the right to
conduct exploratory work to determine whether there are mineable
reserves of gold or diamonds in the licenced areas, are for two years
and are renewable. If mineable reserves of gold or diamonds are
discovered, the Company will have the first option to acquire a mining
lease.
OPTION AGREEMENT ON EDUM BANSO PROJECT
In October, 2005, XG Exploration entered into an option agreement (the
"Option Agreement") with Adom Mining Limited ("Adom") to acquire 100%
of Adom's right, title and interest in and to a prospecting licence on
the Edum Banso concession (the "Edum Banso Project") located in Ghana.
Adom further granted XG Exploration the right to explore, develop, mine
and sell mineral products from this concession. The Option Agreement
has a five year term.
The consideration paid was $15,000 with additional payments of $5,000
to be paid on the anniversary date of the Option Agreement in each year
during the term. Upon the commencement of gold production, an
additional $200,000 is to be paid, unless proven and probable reserves
are less than 2,000,000 ounces, in which case the payment shall be
reduced to $100,000. Upon successful transfer of title from Adom to XG
Exploration, a production royalty (the "Royalty") of 2% of the net
smelter returns shall be paid to Adom; provided, however that in the
event that less than 2,000,000 ounces of proven and probable reserves
are discovered, then the Royalty shall be 1%. The Royalty can be
purchased by XG Exploration for $2,000,000; which will be reduced to
$1,000,000 if proven and probable reserves are less than 2,000,000
ounces.
MINING LEASE AND PROSPECTING LICENCE COMMITMENTS
The Company is committed to expend, save and except for fees payable
from time to time to the Minerals Commission and the Environmental
Protection Agency ("EPA") (of Ghana) for an extension of an expiry date
of a prospecting licence or mining lease and, in the case of the EPA,
processing and certificate fees with respect to EPA permits, an
aggregate of less than $500 in connection with annual or ground rent
and mining permits to enter upon and gain access to the areas covered
by the Company's mining leases and prospecting licences.
10. CONVERTIBLE DEBENTURES
During the year ended December 31, 2005, the Company completed a
convertible debenture financing for gross proceeds of $900,000. The
debentures bear interest at 7% per annum, payable quarterly, and the
principal balance is repayable by June 30, 2010. Debenture holders have
the option to convert any portion of the outstanding principal into
common shares at the conversion rate of $1 per share.
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
(unaudited)
SEPTEMBER 30, 2006
================================================================================
11. ASSET RETIREMENT OBLIGATION
=======================================================================
September 30, 2006 December 31, 2005
-----------------------------------------------------------------------
Balance, beginning of period ... $ 43,833 $ 39,865
Obligation incurred ............ - -
Accretion expense .............. 3,307 3,968
-----------------------------------------------------------------------
Balance, end of period ......... $ 47,140 $ 43,833
=======================================================================
The Company has a legal obligation associated with its mineral
properties for clean up costs when work programs are completed.
The undiscounted amount of cash flows, required over the estimated
reserve life of the underlying assets, to settle the obligation,
adjusted for inflation, is estimated at $50,000 (December 31, 2005 -
$50,000). The obligation was calculated using a credit-adjusted risk
free discount rate of 10% and an inflation rate of 2%. It is expected
that this obligation will be funded from general Company resources at
the time the costs are incurred.
12. CAPITAL STOCK
CANCELLATION OF SHARES
In May 2005, 47,000,000 common shares owned by two directors were
returned to treasury and cancelled.
In June 2006, 10,000 common shares were returned to the Company in
settlement of a dispute and cancelled.
PRIVATE PLACEMENTS
In July 2006, the Company issued 1,132,000 common shares at $0.90 per
share for gross proceeds of $1,018,800. For each two shares subscribed
for, the purchaser received one share purchase warrant which enables
the holder to acquire an additional common share at a price of $1.50 to
July 31, 2007.
In June 2006, the Company issued 578,112 common shares at $0.90 per
share for gross proceeds of $520,300. For each two shares subscribed
for, the purchaser received one share purchase warrant which enables
the holder to acquire an additional common share at a price of $1.50 to
June 16, 2007.
In March 2006, the Company issued 792,029 common shares at $0.70 per
share for gross proceeds of $554,420.
In November 2005, the Company issued 1,549,354 common shares at $0.55
per share for gross proceeds of $852,145.
In August 2005, the Company issued 300,000 common shares at $0.55 per
share for gross proceeds of $165,000. For each two shares subscribed
for, the purchaser received one share purchase warrant which enables
the holder to acquire an additional common share at a price of $0.75 to
August 31, 2006.
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
(unaudited)
SEPTEMBER 30, 2006
================================================================================
12. CAPITAL STOCK (cont'd...)
PRIVATE PLACEMENTS (cont'd...)
In June 2005, the Company issued 536,218 common shares at $0.55 per
share for gross proceeds of $294,920. For each two shares subscribed
for, the purchaser received one share purchase warrant which enables
the holder to acquire an additional common share at a price of $0.75 to
April 30, 2006.
ACQUISITION OF SUBSIDIARY
Effective December 22, 2004, the Company acquired 90% of the
outstanding shares of XG Mining in exchange for 2,698,350 shares of
common stock (Note 4). In connection with this acquisition, 47,000,000
shares owned by two officers and directors of the Company were returned
to treasury and cancelled.
STOCK OPTIONS
The number of shares reserved for issuance under the Company's equity
compensation option plan is 3,000,000. The terms and conditions of any
options granted, including the number and type of options, the exercise
period, the exercise price and vesting provisions, are determined by
the board of directors.
At September 30, 2006, the following stock options were outstanding:
=======================================================================
Number of Options Exercise Price Expiry Date
-----------------------------------------------------------------------
300,000 $0.55 June 20, 2015
324,000 $0.70 April 21, 2009
972,000 $0.70 May 1, 2009
400,000 $0.90 August 1, 2009
=======================================================================
Stock option transactions and the number of stock options outstanding
are summarized as follows:
===============================================================================================
September 30, 2006 December 31, 2005
--------------------------- ---------------------------
Weighted Weighted
Number Average Number Average
of Options Exercise Price of Options Exercise Price
-----------------------------------------------------------------------------------------------
Outstanding, beginning of period .. 1,020,000 $ 0.55 - $ -
Granted ........................ 1,696,000 0.75 1,020,000 0.55
Cancelled/Expired .............. (720,000) 0.55 - -
---------- ----------
Outstanding, end of period ........ 1,996,000 $ 0.72 1,020,000 $ 0.55
===============================================================================================
Exercisable, end of period ........ 252,305 $ 0.65 127,500 $ 0.55
===============================================================================================
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
(unaudited)
SEPTEMBER 30, 2006
================================================================================
12. CAPITAL STOCK (cont'd...)
STOCK-BASED COMPENSATION
The fair value of stock options granted during the nine months ended
September 30, 2006 totalled $816,990 (September 30, 2005 - $310,324).
Of this, $131,647 (September 30, 2005 - $20,511) was expensed in the
period and included in general and administrative expenses. The
remaining $778,052 will be expensed in future periods.
The following assumptions were used for the Black-Scholes valuation of
stock options granted during the nine months ended September 30, 2006
and the year ended December 31, 2005:
September 30, 2006 December 31, 2005
--------------------------------------
Risk-free interest rate .. 4.94% 4.06%
Expected life ............ 3 years 10 years
Annualized volatility .... 31.75% 10.42%
Dividend rate ............ 0% 0%
The weighted average fair value of options granted was $0.48 (December
31, 2005 - $0.30).
WARRANTS
At September 30, 2006, the following warrants were outstanding:
=======================================================================
Number of Warrants Exercise Price Expiry Date
-----------------------------------------------------------------------
289,056 $1.50 June 16, 2007
566,000 $1.50 July 31, 2007
=======================================================================
Warrant transactions and the number of warrants outstanding are
summarized as follows:
=======================================================================
Nine Months
ended
September 30, 2006 December 31, 2005
-----------------------------------------------------------------------
Balance, beginning of period ... 2,482,810 2,064,700
Issued ...................... 855,056 418,110
Exercised ................... (285,700) -
Expired ..................... (2,197,110) -
---------- ---------
Balance, end of period ......... 855,056 2,482,810
=======================================================================
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
(unaudited)
SEPTEMBER 30, 2006
================================================================================
12. CAPITAL STOCK (cont'd...)
WARRANTS (cont'd...)
Exercise of Warrants
(a) The expiry date for the exercise of the warrants issued in
connection with the private placements completed in March and
May 2004 was extended to March 31, 2006. An aggregate of
108,500 of these warrants were exercised for total proceeds of
$81,375.
(b) The exercise of the warrants issued in connection with a
private placement completed in June 2005 expired on April 30,
2006. An aggregate of 177,200 of these warrants were exercised
for total proceeds of $132,900.
13. RELATED PARTY TRANSACTIONS
During the nine months ended September 30, 2006, the Company entered
into the following transactions with related parties:
(a) Paid or accrued consulting fees of $53,320 (September 30, 2005
- $48,363) to officers of the Company or companies controlled
by such officers.
(b) On January 12, 2006, the Board approved the issuance of an
unsecured promissory note ("Note") in the aggregate amount of
US$66,302 in connection with an account payable owing to an
officer and director of the Company ("Note Holder") with
respect to unpaid consulting fees, expenses incurred on behalf
of the Company and a bonus. Under the terms of the Note, the
Note Holder had the option to convert any portion owing under
the Note from time to time into shares of the Company at the
conversion price of US$0.55 per share. On January 31, 2006,
the Note Holder provided the Company with a notice of
conversion to convert US$50,000 of the outstanding Note into
shares and was subsequently issued 90,909 shares on February
9, 2006.
Amounts due to a related party are non-interest bearing, unsecured and
have no fixed terms of repayment.
The amounts charged to the Company for the services provided have been
determined by negotiation among the parties. These transactions were in
the normal course of operations and were measured at the exchange
value, which represented the amount of consideration established and
agreed to by the related parties.
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
(unaudited)
SEPTEMBER 30, 2006
================================================================================
14. SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS
===========================================================================================================
Cumulative amounts from the
beginning of the development
stage on January 1, 2003
September 30, 2006 September 30, 2005 to September 30, 2006
-----------------------------------------------------------------------------------------------------------
Cash paid during the period for:
Interest ...................... $ 47,250 $ 15,750 $ 78,750
Income taxes .................. $ - $ - $ -
===========================================================================================================
The significant non-cash transaction during the nine months ended
September 30, 2006 was the issuance of 90,909 common shares valued at
$50,000 for conversion of a promissory note (Note 13).
The significant non-cash transaction during the nine months ended
September 30, 2005 was the issuance of 10,000 common shares valued at
$5,500 for consulting services.
15. DEFERRED INCOME TAXES
Income tax benefits attributable to losses from United States of
America operations was $Nil for the nine months ended September 30,
2006 and the year ended December 31, 2005, and differed from the
amounts computed by applying the United States of America federal
income tax rate of 34% to pretax losses from operations as a result of
the following:
=======================================================================
September 30, 2006 September 30, 2005
-----------------------------------------------------------------------
Income (loss) for the period $(1,375,973) $ 197,803
=======================================================================
Computed "expected" tax
(benefit) expense ......... (467,831) $ 67,253
Non deductible (taxable)
items ..................... 176,856 (127,709)
Lower effective income tax
rate on loss of foreign
subsidiaries .............. 16,292 7,890
Valuation allowance .......... 274,683 52,566
----------- -----------
$ - $ -
=======================================================================
The tax effects of temporary differences that give rise to significant
deferred tax assets and deferred tax liabilities are presented below:
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
(unaudited)
SEPTEMBER 30, 2006
================================================================================
15. DEFERRED INCOME TAXES (cont'd...)
======================================================================
September 30, 2006 December 31, 2005
----------------------------------------------------------------------
Deferred tax assets:
Net operating loss carry
forwards - US ........... $ 627,165 $ 558,752
Net operating loss carry
forwards - Ghana ........ 146,082 70,053
Valuation allowance .......... (773,247) (628,805)
----------- ----------
Total deferred tax assets .... $ - $ -
======================================================================
The valuation allowance for deferred tax assets as of September 30,
2006 and December 31, 2005 was $773,247 and $628,805 respectively. In
assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary
differences become deductible.
Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning
strategies in assessing the realizability of deferred tax assets. In
order to fully realize the deferred tax asset attributable to net
operating loss carryforwards, the Company will need to generate future
taxable income of approximately $2,366,000 prior to the expiration of
the net operating loss carryforwards. Of the $2,366,322 of operating
loss carryforwards, $1,844,602 is attributable to the US, and expires
between 2019 and 2026, and the balance of $521,720 is attributable to
Ghana and expires between 2007 and 2011.
16. SEGMENTED INFORMATION
The Company has one reportable segment, being the exploration and
development of resource properties.
Geographic information is as follows:
======================================================================
September 30, 2006 December 31, 2005
----------------------------------------------------------------------
Capital assets:
Canada .................... $ 214,750 $ 53,501
Ghana ..................... 8,589,036 8,523,971
----------- ----------
Total capital assets ......... $ 8,803,786 $8,577,472
======================================================================
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
(unaudited)
SEPTEMBER 30, 2006
================================================================================
17. CONTINGENCY AND COMMITMENTS
a) During the period ended September 30, 2006, a former
consultant to the Company's Ghanaian subsidiaries brought an
action for damages in the High Court of Ghana. The former
consultant is alleging wrongful termination and claiming
$172,000 is owed. The Company believes the lawsuit is without
merit and will defend against the lawsuit vigorously. At this
time, the likelihood of the outcome is not determinable and no
liability has been recorded in connection with the lawsuit.
b) Effective July 1, 2006, the Company entered into a management
consulting agreement with a company of which the Chief
Executive Officer of the Company is a director whereby the
Company will pay $4,404 (Cdn$5,000) per month for five years.
Upon the earlier of the bulk test achieving profitability or
being completed, the monthly fee will increase to $8,820
(Cdn$10,000) and upon the commencement of full scale mining
operations, the monthly fee will increase to $13,231
(Cdn$15,000). In the event of termination, without cause, six
months of fees will be payable. In the event of a change of
control, 18 months of fees will be payable.
c) Effective May 1, 2006, the Company entered into a management
consulting agreement with the Vice President, Exploration
whereby the Company will pay $4,404 (Cdn$5,000) per month for
three years. In the event of termination, without cause, 18
months of fees will be payable.
d) Effective July 1, 2006, the Company entered into a management
consulting agreement with the Secretary and Treasurer whereby
the Company will pay $7,497 (Cdn$8,500) per month for five
years. Upon the commencement of full scale mining operations,
the monthly fee will increase to $8,820 (Cdn$10,000). In the
event of termination, without cause, six months of fees will
be payable. In the event of a change of control, 18 months of
fees will be payable.
e) Effective November 1, 2006, the Company entered into a
management consulting agreement with the Vice President, Ghana
Operations whereby the Company will pay $1,000 per month for
one year.
18. SUBSEQUENT EVENTS
Subsequent to September 30, 2006:
A. PRIVATE PLACEMENT
In October 2006, the Company issued 282,000 common shares at
$1.10 per share for gross proceeds of $310,200. For each two
shares subscribed for, the purchaser received one share
purchase warrant which enables the holder to acquire an
additional common share at a price of $1.50 to October 31,
2007.
B. SALE OF OIL AND GAS INTEREST
In October 2006, the Company sold its 5% participating
interest in the Saskatchewan Project to an unrelated oil and
gas company for $314,258.
C. STOCK OPTIONS
Pursuant to the resignation of an officer, 540,000 options
with an exercise price of $0.70 will expire on January 30,
2007, instead of May 1, 2009, if not exercised.
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XTRA-GOLD RESOURCES CORP. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS)
DECEMBER 31, 2005
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DAVIDSON & COMPANY LLP
Chartered Accountants
A Partnership of Incorporated Professionals
________________________________________________________________________________
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of
Xtra-Gold Resources Corp. and Subsidiaries
(A Development Stage Company)
We have audited the accompanying consolidated balance sheets of Xtra-Gold
Resources Corp. and Subsidiaries (A Development Stage Company) as at December
31, 2005 and 2004 and the related consolidated statements of operations,
stockholders' equity and cash flows for the years then ended and for the period
from the beginning of the development stage on January 1, 2003 to December 31,
2005. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as at
December 31, 2005 and 2004 and the results of its operations and its cash flows
for the years then ended and for the period from the beginning of the
development stage on January 1, 2003 to December 31, 2005 in conformity with
accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company incurred losses of $272,572 and $398,533 for
the years ended December 31, 2005 and 2004, respectively, and has an accumulated
deficit during the development stage of $673,805, which raises substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are described in Note 2. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
"DAVIDSON & COMPANY LLP"
Vancouver, Canada Chartered Accountants
March 16, 2006
A Member of SC INTERNATIONAL
============================
1200 - 609 Granville Street, P.O. Box 10372, Pacific Centre,
Vancouver, BC, Canada, V7Y 1G6
Telephone (604) 687-0947 Fax (604) 687-6172
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. Dollars)
AS AT DECEMBER 31
============================================================================================
2005 2004
--------------------------------------------------------------------------------------------
ASSETS
CURRENT
Cash and cash equivalents ................................. $ 458,376 $ 231,480
Investment in trading securities, at fair value
(cost of $2,241,762) (Note 5) .......................... 2,647,207 849,791
Receivables ............................................... 32,667 8,375
------------ ------------
TOTAL CURRENT ASSETS ...................................... 3,138,250 1,089,646
EQUIPMENT (Note 6) ............................................ 6,963 -
DEFERRED FINANCING COSTS (Note 7) ............................. 41,582 -
OIL AND GAS PROPERTY (Note 8) ................................. 46,538 -
MINERAL PROPERTIES (Note 9) ................................... 8,523,971 8,523,971
------------ ------------
TOTAL ASSETS .................................................. $ 11,757,304 $ 9,613,617
============================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities .................. $ 305,825 $ 107,906
Due to related party (Note 13) ............................ 86,499 -
------------ ------------
TOTAL CURRENT LIABILITIES ..................................... 392,324 107,906
CONVERTIBLE DEBENTURES (Note 10) .............................. 900,000 -
ASSET RETIREMENT OBLIGATION (Note 11) ......................... 43,833 39,865
------------ ------------
TOTAL LIABILITIES ......................................... 1,336,157 147,771
------------ ------------
STOCKHOLDERS' EQUITY
Capital stock (Note 12)
Authorized
250,000,000 common shares with a par value of $0.001
Issued and outstanding
24,937,407 common shares (2004-69,541,835 common shares) .. 24,938 69,542
Additional paid in capital ................................ 12,497,778 11,225,301
Deficit ................................................... (1,427,764) (1,427,764)
Deficit accumulated during the development stage .......... (673,805) (401,233)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY ................................ 10,421,147 9,465,846
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................... $ 11,757,304 $ 9,613,617
============================================================================================
HISTORY AND ORGANIZATION OF THE COMPANY (Note 1)
SUBSEQUENT EVENTS (Note 17)
The accompanying notes are an integral part of these consolidated financial statements.
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in U.S. Dollars)
==============================================================================================================
Cumulative amounts
from the beginning of
the development stage
on January 1, 2003 to Year Ended Year Ended
December 31, 2005 December 31, 2005 December 31, 2004
--------------------------------------------------------------------------------------------------------------
EXPENSES
Amortization ................................ $ 1,054 $ 1,054 $ -
Exploration ................................. 788,252 476,223 312,029
General and administrative .................. 634,701 416,639 215,362
Write-off of mineral property (Note 4) ...... 26,000 - 26,000
------------ ------------ ------------
LOSS BEFORE OTHER ITEMS ....................... (1,450,007) (893,916) (553,391)
------------ ------------ ------------
OTHER ITEMS
Foreign exchange gain ....................... 137,364 72,876 64,488
Interest expense ............................ (40,089) (40,089) -
Realized gains on sales of trading securities 161,465 160,170 1,295
Net unrealized gain on trading securities ... 389,910 323,624 66,286
Other income ................................ 127,552 104,763 22,789
------------ ------------ ------------
776,202 621,344 154,858
------------ ------------ ------------
LOSS FOR THE PERIOD ........................... $ (673,805) $ (272,572) $ (398,533)
==============================================================================================================
BASIC AND DILUTED LOSS PER COMMON SHARE ....... $ (0.01) $ (0.01)
==============================================================================================================
BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING .................... 42,075,408 65,660,173
==============================================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. Dollars)
==============================================================================================================
Cumulative amounts
from the beginning of
the development stage
on January 1, 2003 to Year Ended Year Ended
December 31, 2005 December 31, 2005 December 31, 2004
--------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Loss for the period ......................... $ (673,805) $ (272,572) $ (398,533)
Items not affecting cash:
Amortization .............................. 1,054 1,054 -
Amortization of deferred financing costs .. 4,620 4,620 -
Accretion of asset retirement obligation .. 3,968 3,968 -
Shares issued for services ................ 5,500 5,500 -
Stock-based compensation .................. 41,022 41,022 -
Unrealized foreign exchange gain .......... (151,455) (93,339) (58,116)
Realized gains on sale of trading
securities ............................... (161,465) (160,170) (1,295)
Purchase of trading securities ............ (4,790,770) (3,532,825) (1,257,945)
Proceeds on sale of trading securities .... 2,846,393 2,312,542 533,851
Unrealized gain on trading securities ..... (389,910) (323,624) (66,286)
Loss on disposal of equipment ............. 1,088 - 1,088
Write-off of mineral property ............. 26,000 - 26,000
Expenses paid by stockholders ............. 2,700 - -
Changes in non-cash working capital items:
Increase in receivables ................... (24,292) (24,292) -
Increase in accounts payable
and accrued liabilities .................. 248,595 151,381 97,214
Increase in due to related party .......... 86,499 86,499 -
----------- ----------- -----------
Net cash used in operating activities ....... (2,924,258) (1,800,236) (1,124,022)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of
convertible debentures ..................... 900,000 900,000 -
Deferred financing costs .................... (46,202) (46,202) -
Issuance of capital stock, net of
financing costs ............................ 2,550,343 1,181,351 1,368,992
----------- ----------- -----------
Net cash provided by financing activities ... 3,404,141 2,035,149 1,368,992
----------- ----------- -----------
- continued -
The accompanying notes are an integral part of these consolidated financial statements.
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. Dollars)
==============================================================================================================
Cumulative amounts
from the beginning of
the development stage
on January 1, 2003 to Year Ended Year Ended
December 31, 2005 December 31, 2005 December 31, 2004
--------------------------------------------------------------------------------------------------------------
Continued...
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment .................... (8,017) (8,017) -
Acquisition of cash on purchase
of subsidiary .............................. 11,510 - 11,510
Acquisition of subsidiary ................... (25,000) - (25,000)
----------- ----------- -----------
Net cash used in investing activities ....... (21,507) (8,017) (13,490)
----------- ----------- -----------
CHANGE IN CASH AND CASH EQUIVALENTS
DURING THE PERIOD ............................. 458,376 226,896 231,480
CASH AND CASH EQUIVALENTS,
BEGINNING OF THE PERIOD ....................... - 231,480 -
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF THE PERIOD .. $ 458,376 $ 458,376 $ 231,480
==============================================================================================================
SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS (Note 14)
The accompanying notes are an integral part of these consolidated financial statements.
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Expressed in U.S. Dollars)
========================================================================================================================
Deficit
Common Stock Accumulated
----------------------- Additional During the
Number Paid-in Development
of Shares Amount Capital Deficit Stage Total
------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2002 ..... 12,364,085 $ 12,364 $ 1,412,842 $ (1,427,764) $ - $ (2,558)
Paid on behalf of the Company .. - - 5,258 - - 5,258
October 31, 2003, issuance of
stock for acquisition of
subsidiary ..................... 50,350,000 50,350 (50,350) - - -
Loss for the year .............. - - - - (2,700) (2,700)
----------- -------- ------------ ------------ ---------- -----------
BALANCE, DECEMBER 31, 2003 ..... 62,714,085 62,714 1,367,750 (1,427,764) (2,700) -
March, 2004 - private placement
at $0.35 per share ........... 2,000,000 2,000 698,000 - - 700,000
May, 2004 - private placement at
$0.35 per share .............. 2,129,400 2,129 743,161 - - 745,290
December, 2004 - acquisition of
subsidiary via issuance of
common stock ................. 2,698,350 2,699 8,492,688 - - 8,495,387
Share issuance costs ........... - - (76,298) - - (76,298)
Loss for the year .............. - - - - (398,533) (398,533)
----------- -------- ------------ ----------- ---------- -----------
BALANCE, DECEMBER 31, 2004 ..... 69,541,835 69,542 11,225,301 (1,427,764) (401,233) 9,465,846
May, 2005 - cancellation of
shares ....................... (47,000,000) (47,000) 47,000 - - -
June, 2005 - for services ...... 10,000 10 5,490 - - 5,500
June, 2005 - private placement
at $0.55 per share ........... 536,218 536 294,384 - - 294,920
August, 2005 - private placement
at $0.55 per share ............. 300,000 300 164,700 - - 165,000
November, 2005 - private
placement at $0.55 per share . 1,549,354 1,550 850,595 - - 852,145
Share issuance costs ........... - - (130,714) - - (130,714)
Stock-based compensation ....... - - 41,022 - - 41,022
Loss for the year .............. - - - - (272,572) (272,572)
----------- -------- ------------ ----------- ---------- -----------
BALANCE, DECEMBER 31, 2005 ..... 24,937,407 $ 24,938 $ 12,497,778 $(1,427,764) $ (673,805) $10,421,147
========================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
DECEMBER 31, 2005
================================================================================
1. HISTORY AND ORGANIZATION OF THE COMPANY
Silverwing Systems Corporation (the "Company"), a Nevada corporation,
was incorporated on September 1, 1998. On June 23, 1999, the Company
completed the acquisition of Advertain On-Line Canada Inc. ("Advertain
Canada"), a Canadian company operating in Vancouver, British Columbia,
Canada. The Company changed its name to Advertain On-Line Inc.
("Advertain") on August 19, 1999. Advertain Canada's business was the
operation of a web site, "Advertain.com", whose primary purpose was to
distribute entertainment advertising on the Internet.
In May 2001, the Company, being unable to continue its funding of
Advertain Canada's operations, decided to abandon its interest in
Advertain Canada. On June 15, 2001, the Company sold its investment in
Advertain Canada back to Advertain Canada's original shareholder. On
June 18, 2001, the Company changed its name from Advertain to
RetinaPharma International, Inc. ("RetinaPharma") and became inactive.
In 2003, the Company became a resource exploration and development
company. On October 31, 2003, the Company acquired 100% of the issued
and outstanding common stock of Xtra-Gold Resources, Inc.("XGRI"). XGRI
was incorporated in Florida on October 24, 2003. On December 19, 2003,
the Company changed its name from RetinaPharma to Xtra-Gold Resources
Corp.
In 2004, the Company acquired 100% of the issued and outstanding
capital stock of Canadiana Gold Resources Limited ("Canadiana") and 90%
of the issued and outstanding capital stock of Goldenrae Mining Company
Limited ("Goldenrae") (Note 4). Both companies are incorporated in
Ghana and the remaining 10% of the issued and outstanding capital stock
of Goldenrae is held by the Government of Ghana.
On October 20, 2005, XGRI changed its name to Xtra Energy Corp. ("Xtra
Energy").
On October 20, 2005, the Company incorporated Xtra Oil & Gas Ltd.
("XOG") in Alberta, Canada.
On December 21, 2005, Canadiana changed its name to Xtra-Gold
Exploration Limited ("XG Exploration").
On January 13, 2006, Goldenrae changed its name to Xtra-Gold Mining
Limited ("XG Mining").
On March 2, 2006, the Company incorporated Xtra Oil & Gas (Ghana)
Limited ("XOGG") in Ghana.
2. GOING CONCERN
The Company is in the development stage with respect to its resource
properties, incurred losses of $272,572 and $398,533 during the years
ended December 31, 2005 and 2004, respectively, and has accumulated a
deficit during the development stage of $673,805. This raises
substantial doubt about its ability to continue as a going concern. The
ability of the Company to continue as a going concern is dependent on
the Company's ability to raise additional capital and implement its
business plan. The financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going
concern.
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
DECEMBER 31, 2005
================================================================================
2. GOING CONCERN (cont'd...)
Management of the Company ("Management") is of the opinion that
sufficient financing will be obtained from external financing and
further share issuances to meet the Company's obligations. At December
31, 2005, the Company has working capital of $2,745,926 and subsequent
to year end has raised an additional $573,170 pursuant to a private
placement and the exercise of warrants (Note 17).
3. SIGNIFICANT ACCOUNTING POLICIES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
These consolidated financial statements have been prepared in
conformity with generally accepted accounting principles of the United
States of America ("US GAAP").
PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the accounts of the
Company, its wholly owned subsidiaries, Xtra Energy (from October 24,
2003), XG Exploration (from February 16, 2004) and XOG (from October
20, 2005), and its 90% owned subsidiary, XG Mining (from December 22,
2004). All significant intercompany accounts and transactions have been
eliminated on consolidation.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
US GAAP requires Management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments with original
maturities of three months or less to be cash equivalents. At December
31, 2005 and 2004, cash and cash equivalents consisted of cash held at
financial institutions.
RECEIVABLES
No allowance for doubtful accounts has been provided. Management has
evaluated all receivables and believes they are all collectible.
TRADING SECURITIES
The Company's trading securities are reported at fair value, with
unrealized gains and losses included in earnings.
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
DECEMBER 31, 2005
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES (cont'd...)
EQUIPMENT
Equipment is recorded at cost and is being amortized over its estimated
useful lives using the declining balance method at the following annual
rates:
Office furniture and equipment 20%
Computer equipment 30%
DEFERRED FINANCING COSTS
Deferred financing costs consist of expenses incurred to obtain funds
pursuant to the issuance of the convertible debentures and are being
amortized straight-line over the term of the debentures.
OIL AND NATURAL GAS PROPERTIES
The Company follows the full cost method of accounting for oil and
natural gas operations. Under this method, all costs associated with
the acquisition of, exploration for and development of oil and gas
reserves are capitalized in cost centers on a country-by-country basis.
Such costs include property acquisition costs, geological and
geophysical studies, carrying charges on non-producing properties,
costs of drilling productive wells, and overhead expenses directly
related to these activities.
Depletion is calculated for producing properties by using the
unit-of-production method based on estimated proved reserves, before
royalties, as determined by management of the Company or independent
consultants. Sales or dispositions of oil and gas properties are
credited to the respective cost centers and a gain or loss is
recognized when all properties in a cost center have been disposed of,
unless such sale or disposition significantly alters the relationship
between capitalized costs and proved reserves of oil and gas
attributable to the cost center. Costs of abandoned properties are
accounted for as adjustments of capitalized costs and written off to
expense.
Undeveloped properties are excluded from the depletion calculation
until the quantities of proved reserves can be determined.
A ceiling test is applied to the proven properties for each cost center
and for the aggregate of all cost centers by comparing the net
capitalized costs to the estimated future net revenues from production
of estimated proved reserves without discount, plus the costs of
unproved properties net of impairment. Any excess capitalized costs are
written off to expense. Further, the ceiling test for the aggregate of
all cost centers is required to include the effects of future removal
and site restoration costs, general and administrative expenses,
financing costs and income taxes. The calculation of future net
revenues is based upon prices, costs and regulations in effect at each
year end.
Unproved properties are assessed for impairment on an annual basis by
applying factors that rely on historical experience. In general, the
Company may write off any unproved property under one or more of the
following conditions:
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
DECEMBER 31, 2005
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES (cont'd...)
OIL AND NATURAL GAS PROPERTIES (cont'd...)
(a) there are no firm plans for further drilling on the unproved
property;
(b) negative results were obtained from studies of the unproved
properties;
(c) negative results were obtained from studies conducted in the
vicinity of the unproved property; or
(d) the remaining term of the unproved property does not allow
sufficient time for further studies or drilling.
MINERAL PROPERTIES AND EXPLORATION AND DEVELOPMENT COSTS
The costs of acquiring mineral rights are capitalized and allocated
between proven and probable reserves and mineralization not considered
proven and probable reserves at the date of acquisition, based on
relative fair values. If it is later established that some
mineralization meets the definition of proven and probable reserves,
then it will be reclassified as relating to reserves at that time.
After acquisition, various factors can affect the recoverability of the
capitalized costs. If, after review, management concludes that the
carrying amount of a mineral property is impaired, it will be written
down to estimated fair value. Exploration and development costs
incurred on mineral properties classified as mineralization are
expensed as incurred. Development costs incurred on proven and probable
reserves will be capitalized. Upon commencement of production,
capitalized costs will be amortized using the unit-of-production method
over the estimated life of the ore body based on proven and probable
reserves.
LONG-LIVED ASSETS
The Company accounts for long-lived assets under Statements of
Financial Accounting Standards Nos. 142 and 144 "Accounting for
Goodwill and Other Intangible Assets" and "Accounting for Impairment or
Disposal of Long-Lived Assets" ("SFAS 142 and 144"). In accordance with
SFAS 142 and 144, long-lived assets held and used by the Company are
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
For purposes of evaluating the recoverability of long-lived assets, the
recoverability test is performed using undiscounted net cash flows
related to the long-lived assets.
ASSET RETIREMENT OBLIGATIONS
The Company records the fair value of an asset retirement obligation as
a liability in the period in which it incurs a legal obligation
associated with the retirement of tangible long-lived assets that
result from the acquisition, construction, development, and/or normal
use of the long-lived assets. The Company also records a corresponding
asset which is amortized over the life of the asset. Subsequent to the
initial measurement of the asset retirement obligation, the obligation
is adjusted at the end of each period to reflect the passage of time
(accretion expense) and changes in the estimated future cash flows
underlying the obligation (asset retirement cost).
STOCK-BASED COMPENSATION
The Company calculates the fair value of all stock options granted and
records these amounts as compensation expense over the vesting period
of the options using the straight-line method. The Black-Scholes option
pricing model is used to calculate fair value.
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
DECEMBER 31, 2005
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES (cont'd...)
INCOME TAXES
The Company accounts for income taxes under Statements of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). Under SFAS 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under SFAS 109, the effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
LOSS PER SHARE
Basic loss per common share is computed using the weighted average
number of common shares outstanding during the year. To calculate
diluted loss per share, the Company uses the treasury stock method as
defined in Financial Accounting Standards No. 128, "Earnings Per
Share." As of December 31, 2005, there were 2,482,810 warrants (2004 -
2,064,700), 1,020,000 options (2004 - Nil) and convertible debentures
exercisable into 900,000 common shares (2004 - Nil) which have not been
included in the weighted average number of common shares outstanding as
these were anti-dilutive.
FOREIGN EXCHANGE
The Company's functional currency is the U.S. dollar. The Company does
not have non-monetary assets and liabilities that are in a currency
other than the U.S. dollar. Any monetary assets and liabilities that
are in a currency other than the U.S. dollar are translated at the rate
prevailing at year end. Revenue and expenses in a foreign currency are
translated at rates that approximate those in effect at the time of
translation. Gains and losses from translation of foreign currency
transactions into U.S. dollars are included in current results of
operations.
FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash
equivalents, trading securities, receivables, accounts payable and
accrued liabilities, amounts due to a related party and convertible
debentures. It is management's opinion that the Company is not exposed
to significant interest, currency or credit risks arising from its
financial instruments. The fair values of these financial instruments
approximate their carrying values due to their short term nature,
unless otherwise noted. The Company has its cash primarily in one
commercial bank in Toronto, Ontario, Canada.
CONCENTRATION OF CREDIT RISK
The financial instrument which potentially subjects the Company to
concentration of credit risk is cash. The Company maintains cash in
bank accounts that, at times, may exceed federally insured limits. As
of December 31, 2005, the Company has exceeded the federally insured
limit. The Company has not experienced any losses in such accounts and
believes it is not exposed to any significant risks on its cash in bank
accounts.
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
DECEMBER 31, 2005
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES (cont'd...)
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 153, "Exchanges of Non
monetary Assets - an amendment of APB Opinion No. 29" ("SFAS 153")
which amends Accounting Principles Board Opinion No. 29, "Accounting
for Non Monetary Transactions" to eliminate the exception for non
monetary exchanges of similar productive assets and replaces it with a
general exception for exchanges of non monetary assets that do not have
commercial substance. A non monetary exchange has commercial substance
if the future cash flows of the entity are expected to change
significantly as a result of the exchange. SFAS 153 is effective for
non monetary asset exchanges occurring in fiscal periods beginning
after June 15, 2005.
In December 2004, FASB issued Statements of Financial Accounting
Standards No. 123R, "Share Based Payment" ("SFAS 123R"). SFAS 123R
supersedes APB 25 and its related implementation guidance by requiring
entities to recognize the cost of employee services received in
exchange for awards of equity instruments based on the grant-date fair
value of those awards (with limited exceptions) and revises SFAS 123 as
follows:
(i) Public entities are required to measure liabilities incurred to
employees in share-based payment transactions at fair value and
nonpublic entities may elect to measure their liabilities to employees
incurred in share-based payment transactions at their intrinsic value
whereas under SFAS 123, all share-based payment liabilities were
measured at their intrinsic value.
(ii) Nonpublic entities are required to calculate fair value using an
appropriate industry sector index for the expected volatility of its
share price if it is not practicable to estimate the expected
volatility of the entity's share price.
(iii) Entities are required to estimate the number of instruments for
which the requisite service is expected to be rendered as opposed to
accounting for forfeitures as they occur.
(iv) Incremental compensation cost for a modification of the terms or
conditions of an award is measured by comparing the fair value of the
modified award with the fair value of the award immediately before the
modification whereas SFAS 123 required that the effects of a
modification be measured as the difference between the fair value of
the modified award at the date it is granted and the award's value
immediately before the modification determined based on the shorter of
(1) its remaining initially estimated expected life or (2) the expected
life of the modified award.
SFAS 123R also clarifies and expands guidance in several areas,
including measuring fair value, classifying an award as equity or as a
liability and attributing compensation cost to reporting periods. SFAS
123R does not change the accounting guidance for share-based payment
transactions with parties other than employees provided in SFAS 123 as
originally issued and Emerging Issues Task Force No. 96-18 "Accounting
for Equity Instruments that are Issued to Other Than Employees for
Acquiring or in Conjunction with Selling, Goods and Services" ("EITF
96-18"). SFAS 123R also does not address the accounting for employee
share ownership plans which are subject to Statement of Position 93-6,
"Employers' Accounting for Employee Stock Ownership Plans". Public
entities (other than those filing as small business issuers) will be
required to apply SFAS 123R as of the first annual reporting period
that begins after June 15, 2005. Public entities that file as small
business issuers will be required to apply SFAS 123R in the first
annual reporting period that begins after December 15, 2005. For
nonpublic entities, SFAS 123R must be applied as of the beginning of
the first annual reporting period beginning after December 15, 2005.
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
DECEMBER 31, 2005
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES (cont'd...)
RECENT ACCOUNTING PRONOUNCEMENTS (cont'd...)
In May 2005, FASB issued Statements of Financial Accounting Standards
No. 154, "Accounting Changes and Error Corrections - A Replacement of
APB Opinion No. 20 and FASB Statement No. 3" ("SFAS 154") which is
effective for fiscal years ending after December 15, 2005. SFAS 154
requires that changes in accounting policy be accounted for on a
retroactive basis.
The adoption of these new pronouncements is not expected to have a
material effect on the Company's consolidated financial position or
results of operations.
4. ACQUISITIONS
On February 16, 2004, the Company acquired 100% of the outstanding and
issued capital stock of XG Exploration by paying $25,000 and assuming
$1,000 of liabilities. XG Exploration holds rights to a mineral
prospecting licence on the Banso and Muoso concessions (the "Banso and
Muoso Projects") located in Ghana. The total purchase price of $26,000
was written off to operations because no value was established for
these prospecting rights as the Company does not yet have mining leases
from the Government of the Republic of Ghana ("Government of Ghana") to
conduct mining operations on these projects.
On December 22, 2004, the Company acquired 90% of the outstanding and
issued capital stock of XG Mining by issuing 2,698,350 of the Company's
common shares. XG Mining holds mining leases on the Kwabeng and Pameng
concessions (the "Kwabeng and Pameng Projects"), and a mineral
prospecting licence on the Apapam concession (the "Apapam Project"),
all located in Ghana. A feasibility study prepared in 1994, and
subsequently evaluated by the Company, indicates that these concessions
contain placer gold reserves estimated at 216,800 ounces. This was the
primary reason for the acquisition and was the basis for the mineral
property valuation. The cost of the acquisition was based on the fair
value of the net assets acquired.
The total purchase price of $8,495,387 was allocated as follows:
Cash ..................................... $ 11,510
Receivables .............................. 8,375
Equipment ................................ 1,088
Mineral property ......................... 8,484,106
Accounts payable and accrued liabilities . (9,692)
-----------
$ 8,495,387
===========
The Government of Ghana owns the remaining 10% of XG Mining's issued
and outstanding capital stock. Pursuant to Ghanaian mining laws and
regulations, the Government of Ghana holds a 10% interest in all mining
leases in Ghana.
Both acquisitions were accounted for using the purchase method with the
net assets of the acquired companies being recorded at fair market
value at the date of acquisition.
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
DECEMBER 31, 2005
================================================================================
5. INVESTMENTS
At December 31, 2005, the Company held investments classified as
trading securities, which consisted of various equity securities. All
trading securities are carried at fair value. As of December 31, 2005,
the fair value of trading securities was $2,647,207 (2004 - $849,791).
6. EQUIPMENT
===============================================================================================
2005 2004
-------------------------------------------------------------------
Accumulated Net Book Accumulated Net Book
Cost Amortization Value Cost Amortization Value
-------------------------------------------------------------------
Furniture and equipment .. $2,964 $ 296 $2,668 $ - $ - $ -
Computer equipment ....... 5,053 758 4,295 - - -
-------------------------------------------------------------------
$8,017 $1,054 $6,963 $ - $ - $ -
===============================================================================================
7. DEFERRED FINANCING COSTS
==============================================================
2005 2004
--------------------------------------------------------------
Balance, beginning of year ........ $ - $ -
Costs incurred .................... 46,202 -
Amortization ...................... 4,620 -
--------------------------------------------------------------
Balance, end of year .............. $ 41,582 $ -
==============================================================
During the year ended December 31, 2005, the Company paid a finder's
fee of $45,000 and other expenses of $1,202 relating to a convertible
debenture financing (Note 10).
8. OIL AND GAS PROPERTY
During the year ended December 31, 2005, the Company entered into a
participation agreement for a 5% participating interest in certain oil
and gas leases in Saskatchewan, Canada ("Saskatchewan Project"). To
earn its interest, the Company was required to pay Ranger Canyon Energy
Inc. $13,925 and to pay its proportionate share of seismic and drilling
expenditures incurred. The Company's share of a drilling program
undertaken in 2005 was $32,613.
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
DECEMBER 31, 2005
================================================================================
9. MINERAL PROPERTIES
=================================================================
2005 2004
-----------------------------------------------------------------
Acquisition costs (Note 4) .......... $8,484,106 $8,484,106
Asset retirement obligation (Note 11) 39,865 39,865
-----------------------------------------------------------------
Total ............................... $8,523,971 $8,523,971
=================================================================
KWABENG AND PAMENG PROJECTS
The Company holds two mining leases in Ghana. These mining leases grant
the Company surface and mining rights to produce gold in the leased
areas until July 26, 2019. All gold production will be subject to a 3%
production royalty of the net smelter returns ("NSR").
APAPAM, BANSO AND MUOSO PROJECTS
The Company holds prospecting licences on its Apapam, Banso and Muoso
Projects in Ghana. These licences grant the Company the right to
conduct exploratory work to determine whether there are mineable
reserves of gold or diamonds in the licenced areas, are for two years
and are renewable. If mineable reserves of gold or diamonds are
discovered, the Company will have the first option to acquire a mining
lease.
OPTION AGREEMENT ON EDUM BANSO PROJECT
In October, 2005, XG Exploration entered into an option agreement (the
"Option Agreement") with Adom Mining Limited ("Adom") to acquire 100%
of Adom's right, title and interest in and to a prospecting licence on
the Edum Banso concession (the "Edum Banso Project") located in Ghana.
Adom further granted XG Exploration the right to explore, develop, mine
and sell mineral products from this concession. The Option Agreement
has a five year term. The consideration paid was $15,000 with
additional payments of $5,000 to be paid on the anniversary date of the
Option Agreement in each year during the term. Upon the commencement of
gold production, an additional $200,000 is to be paid, unless proven
and probable reserves are less than 2,000,000 ounces, in which case the
payment shall be reduced to $100,000. Upon successful transfer of title
from Adom to XG Exploration, a production royalty (the "Royalty") of 2%
of the net smelter returns shall be paid to Adom; provided, however
that in the event that less than 2,000,000 ounces of proven and
probable reserves are discovered, then the Royalty shall be 1%. The
Royalty can be purchased by XG Exploration for $2,000,000; which will
be reduced to $1,000,000 if proven and probable reserves are less than
2,000,000 ounces.
MINING LEASE AND PROSPECTING LICENCE COMMITMENTS
The Company is committed to expend, save and except for fees payable
from time to time to the Minerals Commission and the Environmental
Protection Agency ("EPA") (of Ghana) for an extension of an expiry date
of a prospecting licence or mining lease and, in the case of the EPA,
processing and certificate fees with respect to EPA permits, an
aggregate of less than $500 in connection with annual or ground rent
and mining permits to enter upon and gain access to the areas covered
by the Company's mining leases and prospecting licences.
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
DECEMBER 31, 2005
================================================================================
10. CONVERTIBLE DEBENTURES
During the year ended December 31, 2005, the Company completed a
convertible debenture financing for gross proceeds of $900,000. The
debentures bear interest at 7% per annum, payable quarterly, and the
principal balance is repayable by June 30, 2010. Debenture holders have
the option to convert any portion of the outstanding principal into
common shares at the conversion rate of $1 per share.
11. ASSET RETIREMENT OBLIGATION
==============================================================
2005 2004
--------------------------------------------------------------
Balance, beginning of year ......... $39,865 $ -
Obligation incurred ................ - 39,865
Accretion expense .................. 3,968 -
--------------------------------------------------------------
Balance, end of year ............... $43,833 $39,865
==============================================================
The Company has a legal obligation associated with its mineral
properties for clean up costs when work programs are completed.
The undiscounted amount of cash flows, required over the estimated
reserve life of the underlying assets, to settle the obligation,
adjusted for inflation, is estimated at $50,000 (2004 - $50,000). The
obligation was calculated using a credit-adjusted risk free discount
rate of 10% and an inflation rate of 2%. It is expected that this
obligation will be funded from general Company resources at the time
the costs are incurred.
12. CAPITAL STOCK
CANCELLATION OF SHARES
In May 2005, 47,000,000 common shares owned by two directors were
returned to treasury and cancelled.
PRIVATE PLACEMENTS
In November 2005, the Company issued 1,549,354 common shares at $0.55
per share for gross proceeds of $852,145.
In August 2005, the Company issued 300,000 common shares at $0.55 per
share for gross proceeds of $165,000. For each two shares subscribed
for, the purchaser received one share purchase warrant which enables
the holder to acquire an additional common share at a price of $0.75 to
August 31, 2006.
In June 2005, the Company issued 536,218 common shares at $0.55 per
share for gross proceeds of $294,920. For each two shares subscribed
for, the purchaser received one share purchase warrant which enables
the holder to acquire an additional common share at a price of $0.75 to
April 30, 2006.
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
DECEMBER 31, 2005
================================================================================
12. CAPITAL STOCK (cont'd...)
PRIVATE PLACEMENTS (cont'd...)
In May 2004, the Company issued 2,129,400 common shares at $0.35 per
share for gross proceeds of $745,290. For each two shares subscribed
for, the purchaser received one share purchase warrant which enables
the holder to acquire an additional common share at a price of $0.75
for one year. The Company subsequently extended the exercise period to
February 28, 2006.
In March 2004, the Company issued 2,000,000 common shares at $0.35 per
share for gross proceeds of $700,000. For each two shares subscribed
for, the purchaser received one share purchase warrant which enables
the holder to acquire an additional common share at a price of $0.75
for one year. The Company subsequently extended the exercise period to
February 28, 2006.
ACQUISITION OF SUBSIDIARY
Effective December 22, 2004, the Company acquired 90% of the
outstanding shares of XG Mining in exchange for 2,698,350 shares of
common stock (Note 4). In connection with this acquisition, 47,000,000
shares owned by two officers and directors of the Company were returned
to treasury and cancelled.
STOCK OPTIONS
The number of shares reserved for issuance under the Company's equity
compensation option plan is 3,000,000. The terms and conditions of any
options granted, including the number and type of options, the exercise
period, the exercise price and vesting provisions, are determined by
the board of directors.
At December 31, 2005, the following stock options were outstanding:
===========================================================
Number of Options Exercise Price Expiry Date
-----------------------------------------------------------
1,020,000 $0.55 June 20, 2015
===========================================================
Stock option transactions and the number of stock options outstanding
are summarized as follows:
=============================================================================================
2005 2004
--------------------------- ---------------------------
Weighted Weighted
Number Average Number Average
of Options Exercise Price of Options Exercise Price
---------------------------------------------------------------------------------------------
Outstanding, beginning of year ... - $ - - $ -
Granted ...................... 1,020,000 0.55 - -
Cancelled/Expired ............ - - - -
--------- ----
Outstanding, end of year ......... 1,020,000 $ 0.55 - $ -
=============================================================================================
Exercisable, end of year ......... 127,500 $ 0.55 - $ -
=============================================================================================
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
DECEMBER 31, 2005
================================================================================
12. CAPITAL STOCK (cont'd...)
STOCK-BASED COMPENSATION
The fair value of stock options granted during the year ended December
31, 2005 totalled $310,324 (2004 - $Nil). Of this, $41,022 (2004 -
$Nil) was expensed in the year and included in general and
administrative expenses. The remaining $269,302 will be expensed in
future periods.
The following assumptions were used for the Black-Scholes valuation of
stock options granted during the years ended December 31, 2005 and
2004:
December December
31, 2005 31, 2004
---------------------
Risk-free interest rate ............. 4.06% -
Expected life ....................... 10 years -
Annualized volatility ............... 10.42% -
Dividend rate ....................... 0% -
The weighted average fair value of options granted was $0.30 (2004 -
$Nil).
WARRANTS
At December 31, 2005, the following warrants were outstanding:
====================================================================
Number of Warrants Exercise Price Expiry Date
--------------------------------------------------------------------
2,064,700 $ 0.75 February 28, 2006 (Note 17)
268,110 0.75 April 30, 2006
150,000 0.75 August 31, 2006
====================================================================
Warrant transactions and the number of warrants outstanding are
summarized as follows:
==============================================================
2005 2004
--------------------------------------------------------------
Balance, beginning of year ..... 2,064,700 -
Issued ..................... 418,110 2,064,700
Exercised .................. - -
Expired .................... - -
--------- ---------
Balance, end of year ........... 2,482,810 2,064,700
==============================================================
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
DECEMBER 31, 2005
================================================================================
13. RELATED PARTY TRANSACTIONS
During the year, the Company entered into the following transactions
with related parties:
(a) Paid or accrued consulting fees of $97,767 (2004 - $Nil) to
officers of the Company.
Amounts due to a related party are non-interest bearing, unsecured and
have no fixed terms of repayment.
The amounts charged to the Company for the services provided have been
determined by negotiation among the parties. These transactions were in
the normal course of operations and were measured at the exchange
value, which represented the amount of consideration established and
agreed to by the related parties.
14. SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS
================================================================================
Cumulative amounts
from the beginning of
the development stage
on January 1, 2003
2005 2004 to December 31, 2005
--------------------------------------------------------------------------------
Cash paid during the period for:
Interest ................... $ 31,500 $ - $ 31,500
Income taxes ............... $ - $ - $ -
================================================================================
The significant non-cash transaction during the year ended December 31,
2005 was the issuance of 10,000 common shares valued at $5,500 for
consulting services.
The significant non-cash transaction during the year ended December 31,
2004 was the issuance of 2,698,350 shares of common stock of the
Company for the acquisition of XG Mining (Note 4).
15. DEFERRED INCOME TAXES
Income tax benefits attributable to losses from United States of
America operations was $Nil for the years ended December 31, 2005 and
2004, and differed from the amounts computed by applying the United
States of America federal income tax rate of 34% to pretax losses from
operations as a result of the following:
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
DECEMBER 31, 2005
================================================================================
15. DEFERRED INCOME TAXES (cont'd...)
==============================================================
2005 2004
--------------------------------------------------------------
Loss for the year .................... $(272,572) $(398,533)
==============================================================
Computed "expected" tax benefit ...... $ (92,674) $(135,501)
Non deductible (deductible) items .... (54,487) 4,234
Lower effective income tax rate on
loss of foreign subsidiaries ....... 673 10,886
Valuation allowance .................. 146,488 120,381
--------- ---------
$ - $ -
==============================================================
The tax effects of temporary differences that give rise to significant
deferred tax assets and deferred tax liabilities are as follows:
===================================================================
2005 2004
-------------------------------------------------------------------
Deferred tax assets:
Net operating loss carry forwards - US .. $ 558,752 $ 510,015
Net operating loss carry forwards - Ghana 70,053 66,911
Valuation allowance ....................... (628,805) (576,926)
--------- ---------
Total deferred tax assets ................. $ - $ -
===================================================================
The valuation allowance for deferred tax assets as of December 31, 2005
and 2004 was $628,805 and $576,926, respectively. In assessing the
realizability of deferred tax assets, management considers whether it
is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during
the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning
strategies in assessing the realizability of deferred tax assets. In
order to fully realize the deferred tax asset attributable to net
operating loss carryforwards, the Company will need to generate future
taxable income of approximately $1,920,000 prior to the expiration of
the net operating loss carryforwards. Of the $1,920,807 of operating
loss carryforwards, $1,670,617 is attributable to the US, and expires
between 2019 and 2025, and the balance of $250,190 is attributable to
Ghana and expires between 2007 and 2010.
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XTRA-GOLD RESOURCES CORP.
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
DECEMBER 31, 2005
================================================================================
16. SEGMENTED INFORMATION
The Company has one reportable segment, being the exploration and
development of resource properties.
Geographic information is as follows:
==============================================================
2005 2004
--------------------------------------------------------------
Capital assets:
Canada .................... $ 53,501 $ -
Ghana ..................... 8,523,971 8,523,971
---------- ----------
Total capital assets ......... $8,577,472 $8,523,971
==============================================================
17. SUBSEQUENT EVENTS
Subsequent to December 31, 2005:
A. PRIVATE PLACEMENT
The Company issued 792,029 common shares at $0.70 per share for
gross proceeds of $554,420.
B. EXERCISE OF WARRANTS
(i) The expiry date for the exercise of the warrants issued in
connection with the private placements completed in March and
May 2004 (Note 12) was extended to March 31, 2006.
(ii) In February 2006, 25,000 warrants were exercised for total
proceeds of $18,750.
C. PROMISSORY NOTE AND SUBSEQUENT CONVERSION INTO SHARES
On January 12, 2006, the Board approved the issuance of an unsecured
promissory note ("Note") in the aggregate amount of US$66,302 in
connection with an account payable owing to an officer and director
of the Company ("Note Holder") with respect to unpaid consulting
fees, expenses incurred on behalf of the Company and a bonus. Under
the terms of the Note, the Note Holder had the option to convert any
portion owing under the Note from time to time into shares of the
Company at the conversion price of US$0.55 per share. On January 31,
2006, the Note Holder provided the Company with a notice of
conversion to convert US$50,000 of the outstanding Note into shares
and was subsequently issued 90,909 shares on February 9, 2006.
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NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF
ANY OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THE INFORMATION SET FORTH HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
TABLE OF CONTENTS
Page
----
Prospectus Summary ......................................................... 7
Risk Factors ............................................................... 10
Use of Proceeds ............................................................ 18
Market for Common Stock and Dividend Policy ................................ 18
Determination of Offering Price ........................... ................ 19
Forward-Looking Statements ................................................. 20
Management's Discussion and Analysis or Plan of Operation .................. 21
Business ................................................................... 30
Management ................................................................. 53
Executive Compensation ..................................................... 58
Certain Relationships and Related Transactions ............................. 63
Principal Stockholders ..................................................... 65
Description of Securities .................................................. 67
Selling Security Holders ................................................... 68
Plan of Distribution ....................................................... 75
Shares Eligible for Future Sale ............................................ 78
Legal Matters .............................................................. 78
Experts .................................................................... 78
Additional Information ..................................................... 79
Financial Statements ....................................................... F-1
8,633,128 SHARES
XTRA-GOLD RESOURCES CORP.
PROSPECTUS
________________, 2007
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PART TWO
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As authorized by the Nevada Revised Statutes, our articles of
incorporation provide that none of our directors shall be personally liable to
us or our stockholders for monetary damages for breach of fiduciary duty as a
director, except liability for:
o any breach of a director's duty of loyalty to our company or our
stockholders;
o acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o unlawful payments of dividends or unlawful stock redemptions or
repurchases; and
o any transaction from which a director derived an improper
personal benefit.
This provision limits our rights and the rights of our stockholders to
recover monetary damages against a director for breach of the fiduciary duty of
care except in the situations described above. This provision does not limit our
rights or the rights of any stockholder to seek injunctive relief or rescission
if a director breaches his duty of care. These provisions will not alter the
liability of our directors under federal securities laws. Our by-laws require us
to indemnify our directors and officers against, to the fullest extent permitted
by law, liabilities which they may incur under the circumstances described
above.
Our articles of incorporation further provide for the indemnification
of any and all persons who serve as our directors, officers, employees or agents
to the fullest extent permitted under Nevada law.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to our directors, officers or persons controlling
our Company pursuant to the foregoing provisions, we have been informed that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the act and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses in connection with the distribution of the
securities being registered, all of which are payable by our Company, are as
follows:
SEC Registration and Filing Fee ............................... $ 1,560
Legal Fees and Expenses* ...................................... $ 20,000
Accounting Fees and Expenses* ................................. $ 15,000
Financial Printing* ........................................... $ 5,000
Transfer Agent Fees* .......................................... $ 1,000
Blue Sky Fees and Expenses* ................................... $ 0
Miscellaneous* ................................................ $ 500
-------------
TOTAL EXPENSES ................................................ $ 43,060
=============
* Estimated
None of the foregoing expenses are being paid by the Selling Security Holders.
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ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On October 28, 2003, as consideration for the option grant from
CaribGold Minerals, Inc., Xtra Energy issued 20,000 shares of its common stock
to CaribGold. These shares were subsequently exchanged for 20,000 shares of our
common stock upon our acquisition of all of the outstanding capital stock of
Xtra Energy (the "XTRA ENERGY ACQUISITION"). CaribGold was provided access to
business and financial information about our Company and had such knowledge and
experience in business and financial matters that it was able to evaluate the
risks and merits of an investment in our Company. Accordingly, CaribGold was a
"sophisticated" investor within the meaning of federal securities laws. The
certificate evidencing the shares issued in the transaction included a legend
stating that the securities were not registered under the Securities Act and may
not be resold absent registration or the availability of an applicable exemption
therefrom. No general solicitation or advertising was used in connection with
the transaction. The Xtra Energy Acquisition was exempt from the registration
requirements of the Securities Act by reason of Section 4(2) thereunder as a
transaction by an issuer not involving any public offering.
On October 31, 2003, our Company issued 10,050,000 shares of our common
stock to acquire the balance of the issued and outstanding shares of Xtra Energy
pursuant to a share exchange (the "SHARE EXCHANGE") with the following
shareholders of Xtra Energy:
-------------------------------------------------------------------------------
NAME NUMBER OF SHARES
-------------------------------------------------------------------------------
William Edward (Ted) McKechnie ............................. 5,000,000
-------------------------------------------------------------------------------
Paul Zyla .................................................. 5,000,000
-------------------------------------------------------------------------------
Brokton International Inc. ................................. 50,000
-------------------------------------------------------------------------------
TOTAL SECURITIES ISSUED .................................... 10,050,000
-------------------------------------------------------------------------------
The Xtra Energy shareholders were provided access to business and
financial information about our Company and had such knowledge and experience in
business and financial matters that they were able to evaluate the risks and
merits of conducting the Share Exchange with our Company. Accordingly, the Xtra
Energy shareholders were "sophisticated" investors within the meaning of federal
securities laws. The certificates evidencing the shares issued in the
transaction included a legend stating that the securities were not registered
under the Securities Act and may not be resold absent registration or the
availability of an applicable exemption therefrom. No general solicitation or
advertising was used in connection with the transaction. The Share Exchange was
exempt from the registration requirements of the Securities Act by reason of
Section 4(2) thereunder as a transaction by an issuer not involving any public
offering.
On December 19, 2003, our Company conducted a stock consolidation
whereby every shareholder of record, as set out in the following table, was
issued five shares for each one share held.
-----------------------------------------------------------------------------------------------
NUMBER OF SHARES TOTAL SHARES
HELD NUMBER OF SHARES ISSUED HELD
NAME OF SHAREHOLDER PRE-CONSOLIDATION ON CONSOLIDATION POST CONSOLIDATION
-----------------------------------------------------------------------------------------------
Cede & Co. .................... 46,705 186,820 233,525
-----------------------------------------------------------------------------------------------
Trevor Allen .................. 5 20 25
-----------------------------------------------------------------------------------------------
Pauline Amoy and Keith Lay .... 10 40 50
-----------------------------------------------------------------------------------------------
Bamby Investments Ltd. ........ 2,800 11,200 14,000
-----------------------------------------------------------------------------------------------
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-----------------------------------------------------------------------------------------------
NUMBER OF SHARES TOTAL SHARES
HELD NUMBER OF SHARES ISSUED HELD
NAME OF SHAREHOLDER PRE-CONSOLIDATION ON CONSOLIDATION POST CONSOLIDATION
-----------------------------------------------------------------------------------------------
Brokton International Ltd. .... 50,000 200,000 250,000
-----------------------------------------------------------------------------------------------
Noreen Brown .................. 10 40 50
-----------------------------------------------------------------------------------------------
Jayne Burgoyne ................ 5 20 25
-----------------------------------------------------------------------------------------------
CaribGold Minerals Inc. ....... 20,000 80,000 100,000
-----------------------------------------------------------------------------------------------
Ian Daniel .................... 53 212 265
-----------------------------------------------------------------------------------------------
Judy Davey .................... 10 40 50
-----------------------------------------------------------------------------------------------
Harwinderj Dhillon ............ 10 40 50
-----------------------------------------------------------------------------------------------
Dynastar Investments Ltd. ..... 1,000 4,000 5,000
-----------------------------------------------------------------------------------------------
Jason Ellis ................... 5 20 25
-----------------------------------------------------------------------------------------------
Janice Eng/Charles Macachor ... 10 40 50
-----------------------------------------------------------------------------------------------
Nancy Etchart ................. 10 40 50
-----------------------------------------------------------------------------------------------
G.M. Capital Partners ......... 1,200,000 4,800,000 6,000,000
-----------------------------------------------------------------------------------------------
Ursula Handschin .............. 4,000 16,000 20,000
-----------------------------------------------------------------------------------------------
High Quality Corp. ............ 1,000 4,000 5,000
-----------------------------------------------------------------------------------------------
Huda Ltd. ..................... 4,000 16,000 20,000
-----------------------------------------------------------------------------------------------
Wan Jung ...................... 10 40 50
-----------------------------------------------------------------------------------------------
Sukhibir Kallu ................ 10 40 50
-----------------------------------------------------------------------------------------------
Knight Financial Ltd. ......... 1,200,000 4,800,000 6,000,000
-----------------------------------------------------------------------------------------------
Michelle Koch ................. 10 40 50
-----------------------------------------------------------------------------------------------
Glenn Lachowiez ............... 10 40 50
-----------------------------------------------------------------------------------------------
Edward and Edith Lay .......... 40 160 200
-----------------------------------------------------------------------------------------------
Barry Lee ..................... 10 40 50
-----------------------------------------------------------------------------------------------
Franklin Macachor Jr. ......... 20 80 100
-----------------------------------------------------------------------------------------------
Barry Maedel .................. 60 240 300
-----------------------------------------------------------------------------------------------
N.H. Maedel ................... 170 680 850
-----------------------------------------------------------------------------------------------
Bernard Magale ................ 5 20 25
-----------------------------------------------------------------------------------------------
Nicolas Mathys ................ 4,000 16,000 20,000
-----------------------------------------------------------------------------------------------
Jollean Matsen ................ 230 920 1,150
-----------------------------------------------------------------------------------------------
Karby Matsen .................. 50 200 250
-----------------------------------------------------------------------------------------------
Ted McKechnie ................. 5,000,000 20,000,000 25,000,000
-----------------------------------------------------------------------------------------------
New Creations Consulting ...... 200 800 1,000
-----------------------------------------------------------------------------------------------
New Creations Consulting ...... 128 512 640
-----------------------------------------------------------------------------------------------
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-----------------------------------------------------------------------------------------------
NUMBER OF SHARES TOTAL SHARES
HELD NUMBER OF SHARES ISSUED HELD
NAME OF SHAREHOLDER PRE-CONSOLIDATION ON CONSOLIDATION POST CONSOLIDATION
-----------------------------------------------------------------------------------------------
Merv Peters ................... 10 40 50
-----------------------------------------------------------------------------------------------
Brent Peters .................. 10 40 50
-----------------------------------------------------------------------------------------------
Michael Reynoch ............... 10 40 50
-----------------------------------------------------------------------------------------------
Ian Shanks .................... 10 40 50
-----------------------------------------------------------------------------------------------
Alison Sharpe ................. 10 40 50
-----------------------------------------------------------------------------------------------
Anne Sharpe ................... 10 40 50
-----------------------------------------------------------------------------------------------
Betsy Sharpe .................. 10 40 50
-----------------------------------------------------------------------------------------------
Don Sharpe .................... 10 40 50
-----------------------------------------------------------------------------------------------
Lynn Sharpe ................... 10 40 50
-----------------------------------------------------------------------------------------------
Thomas and Mary Sheppard ...... 30 120 150
-----------------------------------------------------------------------------------------------
Christian Snelgrove ........... 10 40 50
-----------------------------------------------------------------------------------------------
Shawn Spronken ................ 15 60 75
-----------------------------------------------------------------------------------------------
Kenneth Szuszkiewicz .......... 5 20 25
-----------------------------------------------------------------------------------------------
Tannis Szuszkiewicz ........... 5 20 25
-----------------------------------------------------------------------------------------------
Ken Thomas .................... 10 40 50
-----------------------------------------------------------------------------------------------
Tiger-Eye Investments Cayman .. 4,000 16,000 20,000
-----------------------------------------------------------------------------------------------
TTI Market Explorers Inc. ..... 56 224 280
-----------------------------------------------------------------------------------------------
Randy West .................... 10 40 50
-----------------------------------------------------------------------------------------------
Paul Zyla ..................... 5,000,000 20,000,000 25,000,000
-----------------------------------------------------------------------------------------------
TOTAL SECURITIES ISSUED ....... 50,171,268
-----------------------------------------------------------------------------------------------
The Share Exchange was exempt from the registration requirements of the
Securities Act by reason of Section 4(2) thereunder as a transaction by an
issuer not involving any public offering.
On March 31, 2004, we completed a private financing for an aggregate
purchase price of $700,000 and, in connection therewith, we issued a total of
2,000,000 shares of our common stock and warrants to purchase an additional
1,000,000 shares to the following 22 accredited [or sophisticated] investors:
--------------------------------------------------------------------------------
NAME NUMBER OF SHARES NUMBER OF WARRANTS
--------------------------------------------------------------------------------
Avonlea Homes Investments Ltd. ......... 150,000 75,000
--------------------------------------------------------------------------------
Anne McGinnis .......................... 100,000 50,000
--------------------------------------------------------------------------------
Asad Sheikh ............................ 140,000 70,000
--------------------------------------------------------------------------------
Gordon Winter .......................... 60,000 30,000
--------------------------------------------------------------------------------
Sal Bossio ............................. 100,000 50,000
--------------------------------------------------------------------------------
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--------------------------------------------------------------------------------
NAME NUMBER OF SHARES NUMBER OF WARRANTS
--------------------------------------------------------------------------------
Rene Petitjean ......................... 30,000 15,000
--------------------------------------------------------------------------------
Mazhar Sheikh .......................... 140,000 70,000
--------------------------------------------------------------------------------
Paul Zyla .............................. 84,000 42,000
--------------------------------------------------------------------------------
Bridgitte Longshore, Trustee ........... 100,000 50,000
--------------------------------------------------------------------------------
Jim Schweitzer ......................... 100,000 50,000
--------------------------------------------------------------------------------
Wamada Inc. ............................ 140,000 70,000
--------------------------------------------------------------------------------
Ivano De Cotiis ........................ 30,000 15,000
--------------------------------------------------------------------------------
Steven Adelstein ....................... 72,000 36,000
--------------------------------------------------------------------------------
Michael J. Hausman ..................... 30,000 15,000
--------------------------------------------------------------------------------
Joseph Parisi .......................... 30,000 15,000
--------------------------------------------------------------------------------
Steve E. Vlach ......................... 72,000 36,000
--------------------------------------------------------------------------------
Ashley Investors Corp. ................. 100,000 50,000
--------------------------------------------------------------------------------
Michael Herman ......................... 150,000 75,000
--------------------------------------------------------------------------------
Leonard Sculler ........................ 50,000 25,000
--------------------------------------------------------------------------------
B. S. Jr. Inc. ......................... 143,000 71,500
--------------------------------------------------------------------------------
Hans J. Morsches ....................... 35,000 17,500
--------------------------------------------------------------------------------
Thousand Hills Properties Inc. ......... 144,000 72,000
--------------------------------------------------------------------------------
TOTAL SECURITIES ISSUED ................ 2,000,000 1,000,000
--------------------------------------------------------------------------------
The warrants were initially exercisable until March 31, 2005. Pursuant
to Board approval, the expiry date for the exercise of warrants was extended to
March 31, 2006, at an exercise price of $.75 per share, subject to adjustment.
As of March 31, 2006, 78,500 of the 1,000,000 Warrants were exercised for 78,500
Shares. The remaining 921,500 Warrants were cancelled following their expiration
on March 31, 2006. Each of the investors was provided access to business and
financial information about our Company and had such knowledge and experience in
business and financial matters that they were able to evaluate the risks and
merits of an investment in our Company. Accordingly, the investors were
"sophisticated" within the meaning of federal securities laws. Each certificate
evidencing securities issued in the transaction included a legend stating that
the securities were not registered under the Securities Act and may not be
resold absent registration or the availability of an applicable exemption
therefrom. No general solicitation or advertising was used in connection with
the transaction. No commissions or finder's fees were paid. The transaction was
exempt from the registration requirements of the Securities Act by reason of
Section 4(2) thereunder as a transaction by an issuer not involving any public
offering, and under Rule 506 of Regulation D.
On May 31, 2004, we completed a private financing for an aggregate
purchase price of $745,290 and, in connection therewith, we issued a total of
2,129,400 shares of our common stock and warrants to purchase an additional
1,064,700 shares to the following 24 accredited [or sophisticated] investors:
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--------------------------------------------------------------------------------
NAME NUMBER OF SHARES NUMBER OF WARRANTS
--------------------------------------------------------------------------------
Anacort Capital Inc. ................... 60,000 30,000
--------------------------------------------------------------------------------
Nancy Blasiak .......................... 30,000 15,000
--------------------------------------------------------------------------------
Dale Burstall .......................... 46,000 23,000
--------------------------------------------------------------------------------
Cathy Butler ........................... 15,000 7,500
--------------------------------------------------------------------------------
J. C. Cassina .......................... 50,000 25,000
--------------------------------------------------------------------------------
Michael Cooper ......................... 30,000 15,000
--------------------------------------------------------------------------------
John DeBoer ............................ 40,000 20,000
--------------------------------------------------------------------------------
Joanne Dorval-Dronyk ................... 50,000 25,000
--------------------------------------------------------------------------------
Allen Emes ............................. 60,000 30,000
--------------------------------------------------------------------------------
Shelly Green ........................... 50,000 25,000
--------------------------------------------------------------------------------
Sandra Hall ............................ 50,000 25,000
--------------------------------------------------------------------------------
Arthur G. Hibbard ...................... 60,000 30,000
--------------------------------------------------------------------------------
Robert Ritzer .......................... 30,000 15,000
--------------------------------------------------------------------------------
Wendy E. Shaw .......................... 14,000 7,000
--------------------------------------------------------------------------------
Sheridan Platinum Group Ltd. ........... 71,400 35,700
--------------------------------------------------------------------------------
Richard Smith .......................... 30,000 15,000
--------------------------------------------------------------------------------
Jeff Walker ............................ 30,000 15,000
--------------------------------------------------------------------------------
Paul Weisberg .......................... 30,000 15,000
--------------------------------------------------------------------------------
Paul Zyla .............................. 16,000 8,000
--------------------------------------------------------------------------------
Avonlea Homes Investments Ltd. ......... 595,000 297,500
--------------------------------------------------------------------------------
Finneran Investments Ltd. .............. 150,000 75,000
--------------------------------------------------------------------------------
Stephen J. Maass ....................... 72,000 36,000
--------------------------------------------------------------------------------
Anthony V. and Karen R. Laterza ........ 500,000 250,000
--------------------------------------------------------------------------------
LOM Securities (Bermuda) Limited ....... 50,000 25,000
--------------------------------------------------------------------------------
TOTAL SECURITIES ISSUED ................ 2,129,400 1,064,700
--------------------------------------------------------------------------------
The warrants were initially exercisable until May 31, 2005. Pursuant to
Board approval, the expiry date for the exercise of warrants was extended to
March 31, 2006, at an exercise price of $.75 per share, subject to adjustment.
As of March 31, 2006, 30,000 of the 1,064,700 Warrants were exercised for 30,000
Shares. The remaining 1,034,700 Warrants were cancelled following their
expiration on March 31, 2006. Each of the investors was provided access to
business and financial information about our Company and had such knowledge and
experience in business and financial matters that they were able to evaluate the
risks and merits of an investment in our Company. Accordingly, the investors
were "sophisticated" within the meaning of federal securities laws. Each
certificate evidencing securities issued in the transaction included a legend
stating that the securities were not registered under the Securities Act and may
not be resold absent registration or the availability of an applicable exemption
therefrom. No general solicitation or advertising was used in connection with
the transaction. Haywood Securities Inc. and Norstar Securities International,
registered broker-dealers received an aggregate commission in the amount of
US$21,123.20 for assisting our Company with the sale of the securities
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issued in connection with this transaction. We also paid two individuals an
aggregate finder's fee of $1,347.50 for introducing our Company to certain
investors in connection with this transaction. The transaction was exempt from
the registration requirements of the Securities Act by reason of Section 4(2)
thereunder as a transaction by an issuer not involving any public offering, and
under Regulation S.
On December 22, 2004, we executed a share purchase agreement with the
trustees representing the note and debenture holders of Akrokeri-Ashanti Gold
Limited to extinguish their debts totaling approximately CAD$5,936,700
(USD$5,320,100). Akrokeri-Ashanti had pledged as security to the note and
debenture Holders, 90% of the issued and outstanding shares of its subsidiary,
XG Mining (formerly Goldenrae Mining Company Limited). We exchanged one-half
share of our common stock for every CAD$1.00 (USD$.90) principal amount of notes
and debentures and issued a total of 2,698,350 shares of our common stock for
the CAD$5,396,700 (USD$5,320,100) outstanding principal amount of the notes and
debentures.
--------------------------------------------------------------------------------
NAME OF NOTE OR DEBENTURE HOLDER NUMBER OF SHARES
--------------------------------------------------------------------------------
Canadian Christian Education Foundation ...................... 171,500
--------------------------------------------------------------------------------
Rory Cattanach ............................................... 300
--------------------------------------------------------------------------------
CDS & Co. .................................................... 1,743,100
--------------------------------------------------------------------------------
Marlene Chase ................................................ 50
--------------------------------------------------------------------------------
Cyhen Developments Ltd. ...................................... 50,000
--------------------------------------------------------------------------------
Penny Dibley ................................................. 250
--------------------------------------------------------------------------------
Andrew Dielemen Sr. .......................................... 550
--------------------------------------------------------------------------------
John Griffin ................................................. 2,500
--------------------------------------------------------------------------------
Wilfred Griffioen ............................................ 74,950
--------------------------------------------------------------------------------
Gundyco CIBC World Markets ................................... 500
--------------------------------------------------------------------------------
Laurentian Trust of Canada Inc., in trust for Donald Deeves .. 5,000
--------------------------------------------------------------------------------
Trust La Laurentienne ........................................ 350
--------------------------------------------------------------------------------
Jeannie Luimes ............................................... 5,000
--------------------------------------------------------------------------------
Margaret Van Velzen .......................................... 1,000
--------------------------------------------------------------------------------
Hilda Vroom .................................................. 5,250
--------------------------------------------------------------------------------
W.D. Latimer Co. Ltd. ........................................ 38,050
--------------------------------------------------------------------------------
Albert Bultje ................................................ 8,520
--------------------------------------------------------------------------------
John Cappon .................................................. 17,135
--------------------------------------------------------------------------------
CDS & Co. .................................................... 286,235
--------------------------------------------------------------------------------
Anthony Cristani ............................................. 9,600
--------------------------------------------------------------------------------
John De Boer ................................................. 1,695
--------------------------------------------------------------------------------
John and Nell De Boer ........................................ 7,615
--------------------------------------------------------------------------------
Henk and Yvonne De Bruin ..................................... 21,600
--------------------------------------------------------------------------------
Diane Van Dyk ................................................ 18,130
--------------------------------------------------------------------------------
Grace Engelsman .............................................. 17,870
--------------------------------------------------------------------------------
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NAME OF NOTE OR DEBENTURE HOLDER NUMBER OF SHARES
--------------------------------------------------------------------------------
Fundamental Capital Corp. .................................... 9,600
--------------------------------------------------------------------------------
Doug Groombrdige ............................................. 2,405
--------------------------------------------------------------------------------
Arie and Wilma Kleine ........................................ 18,300
--------------------------------------------------------------------------------
Peter and Tina Koning ........................................ 22,430
--------------------------------------------------------------------------------
Jeannie Luimes ............................................... 3,140
--------------------------------------------------------------------------------
Paul and Susan McFarlan ...................................... 9,600
--------------------------------------------------------------------------------
Paul Mercer and Katherine Ashendenm .......................... 9,690
--------------------------------------------------------------------------------
Art Miedema .................................................. 3,470
--------------------------------------------------------------------------------
J. Douglas Mills ............................................. 4,465
--------------------------------------------------------------------------------
Larry Parker ................................................. 59,215
--------------------------------------------------------------------------------
Yke Reitsma .................................................. 4,310
--------------------------------------------------------------------------------
Susan Thomson ................................................ 5,950
--------------------------------------------------------------------------------
William Ubbens ............................................... 2,515
--------------------------------------------------------------------------------
William and Wendy Ubbens ..................................... 415
--------------------------------------------------------------------------------
George Vroom ................................................. 10,720
--------------------------------------------------------------------------------
Hilda Vroom .................................................. 44,325
--------------------------------------------------------------------------------
John Vroom ................................................... 1,050
--------------------------------------------------------------------------------
TOTAL SECURITIES ISSUED ...................................... 2,698,350
--------------------------------------------------------------------------------
The transaction was exempt from the registration requirements of the
Securities Act by reason of Section 4(2) thereunder as a transaction by an
issuer not involving any public offering.
On June 21, 2005, our Board approved the granting of an aggregate of
1,020,000 nonqualified stock options to certain officers, directors or
consultants of our Company vesting in equal amounts over a four year term at an
exercise price of $0.55 per share. The transaction was exempt from the
registration requirements of the Securities Act by reason of Section 4(2)
thereunder as a transaction by an issuer not involving any public offering.
--------------------------------------------------------------------------------
NUMBER OF SHARES TO BE GRANTED
NAME OF OPTIONEE ON EXERCISE OF OPTIONS
--------------------------------------------------------------------------------
William Edward (Ted) McKechnie ............... 300,000
--------------------------------------------------------------------------------
Daniel Earle ................................. 720,000
--------------------------------------------------------------------------------
TOTAL SECURITIES ISSUED ...................... 1,020,000
--------------------------------------------------------------------------------
On June 30, 2005, we completed a private financing for an aggregate
purchase price of $294,920 and, in connection therewith, we issued a total of
536,218 shares of our common stock and warrants to purchase an additional
268,110 shares to the following 16 accredited [or sophisticated] investors:
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NAME NUMBER OF SHARES NUMBER OF WARRANTS
--------------------------------------------------------------------------------
Bradam Financial Holdings Ltd. ......... 185,000 92,500
--------------------------------------------------------------------------------
CMK Financial Holdings Ltd. ............ 60,000 30,000
--------------------------------------------------------------------------------
Court Global SA ........................ 4,000 2,000
--------------------------------------------------------------------------------
Interloan AG ........................... 19,000 9,500
--------------------------------------------------------------------------------
Merlin Asset Holdings SA ............... 18,000 9,000
--------------------------------------------------------------------------------
Christopher Nola ....................... 181,818 90,910
--------------------------------------------------------------------------------
Nube Administration Inc. ............... 6,000 3,000
--------------------------------------------------------------------------------
Piper Foundation ....................... 6,000 3,000
--------------------------------------------------------------------------------
Anita Shapolsky ........................ 14,000 7,000
--------------------------------------------------------------------------------
N. Sleeva .............................. 6,500 3,250
--------------------------------------------------------------------------------
Suzanne Speckert ....................... 4,000 2,000
--------------------------------------------------------------------------------
I. Spivack ............................. 1,600 800
--------------------------------------------------------------------------------
Tom Stefopulos ......................... 4,000 2,000
--------------------------------------------------------------------------------
Marianne Strub ......................... 2,500 1,250
--------------------------------------------------------------------------------
Subaraschi Foundation .................. 21,000 10,500
--------------------------------------------------------------------------------
B. Wilson .............................. 2,800 1,400
--------------------------------------------------------------------------------
TOTAL SECURITIES ISSUED ................ 536,218 268,110
--------------------------------------------------------------------------------
The warrants were exercisable until April 30, 2006, at an exercise
price of $.75 per share, subject to adjustment. As of April 30, 2006, 177,200 of
the 268,110 Warrants were exercised for 177,200 Shares. The remaining 90,910
Warrants were cancelled following their expiration on April 30, 2006. Each of
the investors was provided access to business and financial information about
our Company and had such knowledge and experience in business and financial
matters that they were able to evaluate the risks and merits of an investment in
our Company. Accordingly, the investors were "sophisticated" within the meaning
of federal securities laws. Each certificate evidencing securities issued in the
transaction included a legend stating that the securities were not registered
under the Securities Act and may not be resold absent registration or the
availability of an applicable exemption therefrom. No general solicitation or
advertising was used in connection with the transaction. We paid a private
foreign investment company a finder's fee of $29,000 for introducing our Company
to certain investors in connection with this transaction. The transaction was
exempt from the registration requirements of the Securities Act by reason of
Section 4(2) thereunder as a transaction by an issuer not involving any public
offering, and under Rule 506 of Regulation D and under Regulation S.
On July 7, 2005, we completed a private debt financing for which we
received aggregate loan proceeds of $900,000. We issued three convertible
debentures as security therefor whereby the holders of the convertible
debentures are entitled to convert the principal balance owing from time to time
thereunder into an aggregate of up to 900,000 shares of our common stock and
Accrued Interest for an aggregate of 15,750 shares of our common stock to the
following three accredited [or sophisticated] investors:
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-----------------------------------------------------------------------------------------------
NUMBER OF SHARES ISSUABLE NUMBER OF SHARES ISSUABLE
ON CONVERSION OF ON CONVERSION OF
NAME CONVERTIBLE DEBENTURES ACCRUED INTEREST
-----------------------------------------------------------------------------------------------
Alpine Atlantic Asset Management AG ... 250,000 4,375
-----------------------------------------------------------------------------------------------
Bradam Financial Holdings Ltd. ........ 500,000 8,750
-----------------------------------------------------------------------------------------------
CMK Financial Holdings Ltd. ........... 150,000 2,625
-----------------------------------------------------------------------------------------------
TOTAL SECURITIES ISSUED ............... 900,000 15,750
-----------------------------------------------------------------------------------------------
Each of the above-noted investors was provided access to business and
financial information about our Company and had such knowledge and experience in
business and financial matters that they were able to evaluate the risks and
merits of an investment in our Company. Accordingly, the investors were
"sophisticated" within the meaning of federal securities laws. Each convertible
debenture and the securities into which they are convertible (collectively, the
"SECURITIES") include a legend stating that the securities were not registered
under the Securities Act and may not be resold absent registration or the
availability of an applicable exemption therefrom. No general solicitation or
advertising was used in connection with these transactions. We paid a private
foreign investment company a finder's fee of $56,000 for introducing our Company
to certain investors in connection with this transaction. The transaction was
exempt from the registration requirements of the Securities Act by reason of
Section 4(2) thereunder as a transaction by an issuer not involving any public
offering and under Regulation S. This transaction was an "offshore" transaction
with non-U.S. persons.
On August 31, 2005, we completed a private financing for an aggregate
purchase price of $165,000 and, in connection therewith, we issued a total of
300,000 shares of our common stock and warrants to purchase an additional
150,000 shares to the following three accredited [or sophisticated] investors:
--------------------------------------------------------------------------------
NAME NUMBER OF SHARES NUMBER OF WARRANTS
--------------------------------------------------------------------------------
Brian Lines ........................... 200,000 100,000
--------------------------------------------------------------------------------
Fred Honea and Carmen de Liniers ...... 100,000 50,000
--------------------------------------------------------------------------------
TOTAL SECURITIES ISSUED ............... 300,000 150,000
--------------------------------------------------------------------------------
The warrants are exercisable until August 31, 2006, at an exercise
price of $.75 per share, subject to adjustment. As of August 31, 2006, none of
the warrants had been exercised. Each of the investors was provided access to
business and financial information about our Company and had such knowledge and
experience in business and financial matters that they were able to evaluate the
risks and merits of an investment in our Company. Accordingly, the investors
were "sophisticated" within the meaning of federal securities laws. Each
certificate evidencing securities issued in the transaction included a legend
stating that the securities were not registered under the Securities Act and may
not be resold absent registration or the availability of an applicable exemption
therefrom. No general solicitation or advertising was used in connection with
the transaction. Haywood Securities Inc., a registered broker-dealer received a
commission in the amount of US$5,500 for assisting our Company with the sale of
the securities issued in connection with this transaction. The transaction was
exempt from the registration requirements of the Securities Act by reason of
Section 4(2) thereunder as a transaction by an issuer not involving any public
offering and under Regulation S. This transaction was an "offshore" transaction
to non-U.S. persons.
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On November 7, 2005, we completed a private financing for an aggregate
purchase price of $852,145 and, in connection therewith, we issued a total of
1,549,354 shares of our common stock to the following 22 accredited [or
sophisticated] investors:
--------------------------------------------------------------------------------
NAME NUMBER OF SHARES
--------------------------------------------------------------------------------
Sufran Investments Ltd. ................................ 50,000
--------------------------------------------------------------------------------
Walter Schneider ....................................... 100,000
--------------------------------------------------------------------------------
Peter Schmid ........................................... 20,000
--------------------------------------------------------------------------------
Leon van der Merwe ..................................... 100,000
--------------------------------------------------------------------------------
Margaret Speckert ...................................... 100,000
--------------------------------------------------------------------------------
Pipeline Displays and Fixtures Inc. .................... 50,000
--------------------------------------------------------------------------------
1127024 Ontario Limited ................................ 35,000
--------------------------------------------------------------------------------
Allen Emes ............................................. 30,000
--------------------------------------------------------------------------------
H. Richard Smith ....................................... 40,000
--------------------------------------------------------------------------------
Arthur G. Hibbard ...................................... 90,000
--------------------------------------------------------------------------------
Anacort Capital Inc. ................................... 40,000
--------------------------------------------------------------------------------
John Richard Charlton .................................. 200,000
--------------------------------------------------------------------------------
Katherine Carson ....................................... 19,354
--------------------------------------------------------------------------------
Joanne Dorval-Dronyk ................................... 60,000
--------------------------------------------------------------------------------
Richard Coglan ......................................... 100,000
--------------------------------------------------------------------------------
Asad Sheikh ............................................ 100,000
--------------------------------------------------------------------------------
Walter Dainard ......................................... 100,000
--------------------------------------------------------------------------------
Slowjen Ltd. ........................................... 15,000
--------------------------------------------------------------------------------
Zapfe Holdings Inc. .................................... 100,000
--------------------------------------------------------------------------------
John McFarlane ......................................... 50,000
--------------------------------------------------------------------------------
Norman Clements ........................................ 50,000
--------------------------------------------------------------------------------
Kander Financial Corp. ................................. 100,000
--------------------------------------------------------------------------------
TOTAL SECURITIES ISSUED ................................ 1,549,354
--------------------------------------------------------------------------------
Each of the above-noted investors was provided access to business and
financial information about our Company and had such knowledge and experience in
business and financial matters that they were able to evaluate the risks and
merits of an investment in our Company. Accordingly, the investors were
"sophisticated" within the meaning of federal securities laws. Each certificate
evidencing securities issued in the transaction included a legend stating that
the securities were not registered under the Securities Act and may not be
resold absent registration or the availability of an applicable exemption
therefrom. No general solicitation or advertising was used in connection with
the transaction. Haywood Securities Inc., a registered broker-dealer received a
commission in the amount of US$2,200 for assisting our Company with the sale of
the securities issued in connection with this transaction. We also paid a
private foreign investment company a finder's fee of $48,089 and an individual a
finder's fee of $8,800 for introducing our Company to certain investors in
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connection with this transaction. The transaction was exempt from the
registration requirements of the Securities Act by reason of Section 4(2)
thereunder and Regulation S. This transaction was an "offshore" transaction to
non-U.S. persons.
We established our 2005 Equity Compensation Plan (the "PLAN") effective
June 21, 2005, which provides for the issuance of nonqualified options to
officers, directors and key employees, consultants, advisors and other service
providers. As of February 1, 2007, we have issued and outstanding options to
purchase 1,456,000 shares of common stock under the Plan at an exercise price of
(i) $0.55 per share for 300,000 options expiring on June 20, 2015; (ii) $0.70
per share for 324,000 options expiring on April 21, 2009; (iii) $0.70 per share
for 432,000 options which expire on May 1, 2009 ; and (iv) $0.90 per share for
400,000 options expiring on August 1, 2009. The options were issued to six
consultants of our Company, four of whom are also current officers and/or
directors of our Company. The security issuances were exempt from registration
by Section 4(2) of the Securities Act. The option holders had access to
information about us and had the opportunity to ask questions about us. The
options issued contain a legend restricting their transferability absent
registration or an available exemption.
On January 12, 2006, we issued a $66,302 convertible promissory note
(the "NOTE") to a former officer and director of our Company, for accrued
expenses incurred on behalf of our Company, unpaid consulting fees and a bonus.
This issuance was exempt from registration under the Securities Act in reliance
on Section 4(2). The certificate evidencing the Note that was issued contained a
legend restricting its transferability absent registration under the Securities
Act or the availability of an applicable exemption therefrom.
On March 6, 2006, we completed a private financing for an aggregate
purchase price of $554,420 and, in connection therewith, we issued a total of
792,029 shares of our common stock to the following eight accredited [or
sophisticated] investors:
--------------------------------------------------------------------------------
NAME NUMBER OF SHARES
--------------------------------------------------------------------------------
Fred Honea and Carmen de Liniers ....................... 250,000
--------------------------------------------------------------------------------
Morton Berman .......................................... 35,000
--------------------------------------------------------------------------------
Brulene Inc. ........................................... 142,000
--------------------------------------------------------------------------------
J.W.T. Witzel .......................................... 70,000
--------------------------------------------------------------------------------
Eric Robert Taylor ..................................... 150,029
--------------------------------------------------------------------------------
E.C. McFeely ........................................... 100,000
--------------------------------------------------------------------------------
Fred Kozak ............................................. 20,000
--------------------------------------------------------------------------------
Bank Julius Baer & Co. Ltd. ............................ 25,000
--------------------------------------------------------------------------------
TOTAL SECURITIES ISSUED ................................ 792,029
--------------------------------------------------------------------------------
Each of the above-noted investors was provided access to business and
financial information about our Company and had such knowledge and experience in
business and financial matters that they were able to evaluate the risks and
merits of an investment in our Company. Accordingly, the investors were
"sophisticated" within the meaning of federal securities laws. Each certificate
evidencing securities issued in the transaction included a legend stating that
the securities were not registered under the Securities Act and may not be
resold absent registration or the availability of an applicable exemption
therefrom. No general solicitation or advertising was used in connection with
the transaction. We also paid two private foreign investment companies an
aggregate finder's fee of $58,000 for introducing our Company to certain
investors in connection with this transaction. The transaction was exempt from
the registration requirements of the Securities Act by reason of Section 4(2)
thereunder and under Rule 506 of Regulation D and Regulation S.
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In March 2006, we issued 108,500 shares of our common stock for an
aggregate purchase price of $81,375 to 4 accredited [or sophisticated] investors
pursuant to the exercise of common stock purchase warrants originally issued in
March 2004(as to 53,500) and May 2004(as to 55,000). Each investor was provided
access to business and financial information about our Company and had such
knowledge and experience in business and financial matters that they were able
to evaluate the risks and merits of an investment in our Company. Accordingly,
the investors were "sophisticated" within the meaning of federal securities
laws. Each certificate evidencing securities issued in the transaction included
a legend stating that the securities were not registered under the Securities
Act and may not be resold absent registration or the availability of an
applicable exemption therefrom. No general solicitation or advertising was used
in connection with the transaction. The transaction was exempt from the
registration requirements of the Securities Act by reason of Section 4(2)
thereunder and under Rule 506 of Regulation D and Regulation S.
On April 21, 2006, our Board approved the granting of an aggregate of
324,000 nonqualified stock options to certain officers, directors or consultants
of our Company vesting in equal amounts over a three year term at an exercise
price of $0.70 per share. The transaction was exempt from the registration
requirements of the Securities Act by reason of Section 4(2) thereunder as a
transaction by an issuer not involving any public offering.
--------------------------------------------------------------------------------
NUMBER OF SHARES TO BE GRANTED
NAME OF OPTIONEE ON EXERCISE OF OPTIONS
--------------------------------------------------------------------------------
William Edward (Ted) McKechnie ............. 216,000
--------------------------------------------------------------------------------
Rebecca Kiomi Mori ......................... 108,000
--------------------------------------------------------------------------------
TOTAL SECURITIES ISSUED .................... 324,000
--------------------------------------------------------------------------------
In April 2006, we issued 177,200 shares of our common stock for an
aggregate purchase price of $132,900 to 15 accredited [or sophisticated]
investors pursuant to the exercise of common stock purchase warrants originally
issued in June 2005. Each investor was provided access to business and financial
information about our Company and had such knowledge and experience in business
and financial matters that they were able to evaluate the risks and merits of an
investment in our Company. Accordingly, the investors were "sophisticated"
within the meaning of federal securities laws. Each certificate evidencing
securities issued in the transaction included a legend stating that the
securities were not registered under the Securities Act and may not be resold
absent registration or the availability of an applicable exemption therefrom. No
general solicitation or advertising was used in connection with the transaction.
The transaction was exempt from the registration requirements of the Securities
Act by reason of Section 4(2) thereunder and under Rule 506 of Regulation D and
Regulation S.
On May 1, 2006, our Board approved the granting of an aggregate of
972,000 nonqualified stock options to certain officers, directors or consultants
of our Company vesting in equal amounts over a three year term at an exercise
price of $0.70 per share. The transaction was exempt from the registration
requirements of the Securities Act by reason of Section 4(2) thereunder as a
transaction by an issuer not involving any public offering.
--------------------------------------------------------------------------------
NUMBER OF SHARES TO BE GRANTED
NAME OF OPTIONEE ON EXERCISE OF OPTIONS
--------------------------------------------------------------------------------
Dr. Michael Byron .......................... 540,000 (1)
--------------------------------------------------------------------------------
Yves Clement ............................... 324,000
--------------------------------------------------------------------------------
Alhaji Abudulai ............................ 108,000
--------------------------------------------------------------------------------
TOTAL SECURITIES ISSUED .................... 972,000
--------------------------------------------------------------------------------
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(1) Following the resignation of the optionee on October 30, 2006, all of these
options became vested and expired and were subsequently cancelled on January 30,
2007.
On June 16, 2006, we completed a private financing for an aggregate
purchase price of $520,300 and, in connection therewith, we issued a total of
578,112 shares of our common stock and warrants to purchase an additional
289,056 shares to the following ten accredited [or sophisticated] investors:
--------------------------------------------------------------------------------
NAME NUMBER OF SHARES NUMBER OF WARRANTS
--------------------------------------------------------------------------------
Norman Clements .............. 70,000 35,000
--------------------------------------------------------------------------------
Ron Nichol ................... 10,000 5,000
--------------------------------------------------------------------------------
Sharon Christie .............. 50,000 25,000
--------------------------------------------------------------------------------
Thousand Hills Properties .... 60,000 30,000
--------------------------------------------------------------------------------
Michael and Vicki Lawrence ... 30,000 15,000
--------------------------------------------------------------------------------
Frankie Mead ................. 16,000 8,000
--------------------------------------------------------------------------------
Christopher Nola ............. 111,112 55,556
--------------------------------------------------------------------------------
Basil F. Nola ................ 20,000 10,000
--------------------------------------------------------------------------------
Eric Taylor .................. 111,000 55,500
--------------------------------------------------------------------------------
Fred Honea ................... 100,000 50,000
--------------------------------------------------------------------------------
TOTAL SECURITIES ISSUED ...... 578,112 289,056
--------------------------------------------------------------------------------
The warrants are exercisable until June 16, 2007, at an exercise price
of $1.50 per share, subject to adjustment. Each of the above-noted investors was
provided access to business and financial information about our Company and had
such knowledge and experience in business and financial matters that they were
able to evaluate the risks and merits of an investment in our Company.
Accordingly, the investors were "sophisticated" within the meaning of federal
securities laws. Each certificate evidencing securities issued in the
transaction included a legend stating that the securities were not registered
under the Securities Act and may not be resold absent registration or the
availability of an applicable exemption therefrom. No general solicitation or
advertising was used in connection with the transaction. We also paid two
private foreign investment companies an aggregate finder's fee of $52,000 for
introducing our Company to certain investors in connection with this
transaction. The transaction was exempt from the registration requirements of
the Securities Act by reason of Section 4(2) thereunder and under Rule 506 of
Regulation D and Regulation S.
On July 24, 2006, we completed a private financing for an aggregate
purchase price of $1,018,800 and, in connection therewith, we issued a total of
1,132,000 shares of our common stock and warrants to purchase an additional
566,000 shares to the following two accredited [or sophisticated] investors:
--------------------------------------------------------------------------------
NAME NUMBER OF SHARES NUMBER OF WARRANTS
--------------------------------------------------------------------------------
Sprott Securities Inc. ....... 1,110,000 555,000
--------------------------------------------------------------------------------
Peter L. Winnell ............. 22,000 11,000
--------------------------------------------------------------------------------
TOTAL SECURITIES ISSUED ...... 1,132,000 566,000
--------------------------------------------------------------------------------
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The warrants are exercisable until July 31, 2007, at an exercise price
of $1.50 per share, subject to adjustment. Each of the above-noted investors was
provided access to business and financial information about our Company and had
such knowledge and experience in business and financial matters that they were
able to evaluate the risks and merits of an investment in our Company.
Accordingly, the investors were "sophisticated" within the meaning of federal
securities laws. Each certificate evidencing securities issued in the
transaction included a legend stating that the securities were not registered
under the Securities Act and may not be resold absent registration or the
availability of an applicable exemption therefrom. No general solicitation or
advertising was used in connection with the transaction. We also paid a private
foreign investment company a finder's fee of $50,000 and an individual a
finder's fee of $50,000 for introducing our Company to certain investors in
connection with this transaction. The transaction was exempt from the
registration requirements of the Securities Act by reason of Section 4(2)
thereunder and under Regulation S. This transaction was an "offshore"
transaction to non-U.S. persons.
On August 1, 2006, our Board approved the granting of an aggregate of
400,000 nonqualified stock options ("NSO'S") to certain officers, directors or
consultants of our Company. The NSO's granted to our officer and director will
vest in equal amounts over a three year term and the NSO's granted to a
consultant will vest upon the achievement of certain milestones as to 100,000
per achievement. The NSO's have an exercise price of $0.90 per share. The
transaction was exempt from the registration requirements of the Securities Act
by reason of Section 4(2) thereunder as a transaction by an issuer not involving
any public offering.
--------------------------------------------------------------------------------
NUMBER OF SHARES TO BE GRANTED
NAME OF OPTIONEE ON EXERCISE OF OPTIONS
--------------------------------------------------------------------------------
William Edward (Ted) McKechnie ............. 200,000
--------------------------------------------------------------------------------
John Douglas Mills ......................... 200,000
--------------------------------------------------------------------------------
TOTAL SECURITIES ISSUED .................... 400,000
--------------------------------------------------------------------------------
On November 27, 2006, we completed a private financing for an aggregate
purchase price of $310,200 and, in connection therewith, we issued a total of
282,000 shares of our common stock and warrants to purchase an additional
141,000 shares to the following eight accredited [or sophisticated] investors:
--------------------------------------------------------------------------------
NAME NUMBER OF SHARES NUMBER OF WARRANTS
--------------------------------------------------------------------------------
Walter Schneider ............. 50,000 25,000
--------------------------------------------------------------------------------
Adrian Jaggi ................. 20,000 10,000
--------------------------------------------------------------------------------
Markus Bertschin ............. 30,000 15,000
--------------------------------------------------------------------------------
Ernst Baur ................... 30,000 15,000
--------------------------------------------------------------------------------
Matthias Schole .............. 32,000 16,000
--------------------------------------------------------------------------------
Earl Charleton ............... 10,000 5,000
--------------------------------------------------------------------------------
Leon Van Der Merwe ........... 100,000 50,000
--------------------------------------------------------------------------------
Kurt Groebli ................. 10,000 5,000
--------------------------------------------------------------------------------
TOTAL SECURITIES ISSUED ...... 282,000 141,000
--------------------------------------------------------------------------------
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The warrants are exercisable until October 31, 2007, at an exercise
price of $1.50 per share, subject to adjustment. Each of the above-noted
investors was provided access to business and financial information about our
Company and had such knowledge and experience in business and financial matters
that they were able to evaluate the risks and merits of an investment in our
Company. Accordingly, the investors were "sophisticated" within the meaning of
federal securities laws. Each certificate evidencing securities issued in the
transaction included a legend stating that the securities were not registered
under the Securities Act and may not be resold absent registration or the
availability of an applicable exemption therefrom. No general solicitation or
advertising was used in connection with the transaction. We paid an individual a
finder's fee of $24,816 for introducing our Company to certain investors in
connection with this transaction. The transaction was exempt from the
registration requirements of the Securities Act by reason of Section 4(2)
thereunder and under Regulation S. This transaction was an "offshore"
transaction to non-U.S. persons.
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ITEM 27. EXHIBITS
EXHIBIT NO. DESCRIPTION OF DOCUMENT
2.1 Stock Exchange Agreement dated October 31, 2003, by and between
Xtra-Gold Resources Corp. and the former shareholders of Xtra
Energy Corp. (formerly Xtra-Gold Resources, Inc.) **
3.1 Articles of Incorporation of Silverwing Systems Corporation filed
on September 1, 1998 **
3.2 Articles of Amendment filed on August 19, 1999 to change our name
to Advertain On-Line Inc. **
3.3 Articles of Amendment filed June 18, 2001 to change our name to
RetinaPharma International, Inc. **
3.4 Articles of Amendment filed on October 8, 2001 to increase our
capital stock from 25,000,000 to 100,000,000 shares **
3.5 Articles of Amendment filed December 16, 2003 to change our name
to Xtra-Gold Resources Corp. and to increase our capital stock
from 100,000,000 to 250,000,000 shares **
3.6 By-laws **
4.1 Form of common stock purchase warrant **
4.2 Form of convertible debenture **
5 Legal Opinion of Schneider Weinberger & Beilly LLP *
10.1 2005 Equity Compensation Plan **
10.2 Memorandum of Agreement dated October 28, 2003, by and between
Xtra Energy Corp. (formerly Xtra-Gold Resources, Inc.) and Ranger
Canyon Energy Inc. (formerly CaribGold Minerals, Inc.) *
10.3 Agreement dated February 16, 2004 by and between Xtra-Gold
Resources Corp. and Akrokeri-Ashanti Gold Mines Inc. **
10.4 Share Purchase Agreement dated December 22, 2004 between Xtra-Gold
Resources Corp. and 2058168 Ontario Inc., the trustee for the
former note holders of Akrokeri-Ashanti Gold Mines Inc. **
10.5 Share Purchase Agreement dated December 22, 2004 among Xtra-Gold
Resources Corp., 2058168 Ontario Inc., the trustee for the former
debenture holders of Akrokeri-Ashanti Gold Mines Inc. and 2060768
Ontario Corp. **
10.6 Stock Cancellation Agreement dated December 22, 2004 by and
between Paul Zyla and Xtra-Gold Resources Corp. with respect to
the cancellation of 24,000,000 shares **
10.7 Stock Cancellation Agreement dated December 22, 2004 by and
between William Edward McKechnie and Xtra-Gold Resources Corp.
with respect to the cancellation of 23,000,000 shares **
10.09 Stock option agreement dated September 5, 2005 with William Edward
McKechnie, as optionee **
10.10 Stock option agreement dated April 21, 2006 with William Edward
McKechnie, as optionee **
10.11 Stock option agreement dated April 21, 2006 with Kiomi Mori, as
optionee **
10.12 Stock option agreement dated May 1, 2006 with Michael Byron, as
optionee **
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10.13 Stock option agreement dated May 1, 2006 with Yves Clement, as
optionee **
10.14 Stock option agreement dated May 1, 2006 with Alhaji Abudulai, as
optionee **
10.15 Stock option agreement dated August 1, 2006 with William Edward
McKechnie, as optionee **
10.16 Stock option agreement dated August 1, 2006 with John Douglas
Mills, as optionee **
10.17 Management consulting agreement dated May 1, 2006 with Yves
Clement **
10.18 Management consulting agreement dated July 1, 2006 with Goldeye
Consultants Ltd. **
10.19 Management consulting agreement dated July 1, 2006 with Rebecca
Kiomi Mori **
10.20 Consulting agreement dated August 1, 2006 with JD Mining Ltd.
10.21 Management consulting agreement dated November 1, 2006 with Alhaji
Nantogma Abudulai **
10.22 Mining lease with respect to the Kwabeng concession *
10.23 Mining lease with respect to the Pameng concession *
10.24 Prospecting licence with respect to the Banso and Muoso
concessions **
10.25 Prospecting licence with respect to the Apapam concession
10.26 Prospecting licence with respect to the Edum Banso concession **
10.27 Option Agreement dated October 17, 2005 between Xtra-Gold
Exploration Limited and Adom Mining Limited *
10.28 Consulting agreement dated January 17, 2006 between Xtra-Gold
Mining Limited and Bio Consult Limited **
10.29 Purchase and Sale Agreement dated September 1, 2006 between Xtra
Oil & Gas Ltd. and TriStar Oil & Gas Partnership **
10.30 Amending Agreement dated October 19, 2006 between Xtra-Gold
Exploration and Adom Mining Limited *
14 Code of Ethics **
23.1 Consent of Schneider Weinberger & Beilly LLP (filed with
Exhibit 5) *
23.2 Consent of Davidson & Company LLP
__________
* to be filed
** Previously filed
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ITEM 28. UNDERTAKINGS
The undersigned small business issuer will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement; and notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospects filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in the volume and price represent no
more than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement;
and
(iii) Include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(4) For determining liability of the undersigned small business issuer
under the Securities Act to any purchaser in the initial distribution of the
securities, the undersigned small business issuer undertakes that in a primary
offering of securities of the undersigned small business issuer pursuant to this
Registration Statement, regardless of the underwriting method used to sell the
securities to the purchaser, if the securities are offered or sold to such
purchaser by means of any of the following communications, the undersigned small
business issuer will be a seller to the purchaser and will be considered to
offer or sell such securities to such purchaser:
i. Any preliminary prospectus or prospectus of the undersigned
small business issuer relating to the offering required to be filed
pursuant to Rule 424;
ii. Any free writing prospectus relating to the offering prepared
by or on behalf of the undersigned small business issuer or used or
referred to by the undersigned small business issuer;
iii. The portion of any other free writing prospectus relating to
the offering containing material information about the undersigned
small business issuer or its securities provided by or on behalf of the
undersigned small business issuer; and
iv. Any other communication that is an offer in the offering made
by the undersigned small business issuer to the purchaser.
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Each prospectus filed pursuant to Rule 424(b) filed under the Act as
part of a registration statement relating to an offering, other than
registration statements relying on Rule 430B of the Act or other than
prospectuses filed in reliance on Rule 430A of the Act, shall be deemed to be
part of and included in the registration statement as of the date it is first
used after effectiveness. Provided, however, that no statement made in a
registration statement or prospectus that is part of the registration statement
or made in a document incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the registration statement
will, as to a purchaser with a time of contract of sale prior to such first use,
supersede or modify any statement that was made in the registration statement or
prospectus that was part of the registration statement or made in any such
document immediately prior to such date of first use.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or preceding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Toronto, Canada on February 8, 2007.
XTRA-GOLD RESOURCES CORP.
By: /s/ WILLIAM EDWARD MCKECHNIE
----------------------------
WILLIAM EDWARD MCKECHNIE
Chief (Principal) Executive and Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Form
SB-2 Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ WILLIAM EDWARD MCKECHNIE Chief (Principal) Accounting/ February 8, 2007
---------------------------- Financial Officer, Chairman,
WILLIAM EDWARD MCKECHNIE Chief (Principal) Executive
Officer and Director
/s/ REBECCA KIOMI MORI Secretary and Treasurer February 8, 2007
---------------------------- and Director
REBECCA KIOMI MORI
/s/ JAMES WERTH LONGSHORE Director February 8, 2007
----------------------------
JAMES WERTH LONGSHORE
